posted August 16, 2017
How Capitalist Central Banks Have Been Creating the Next Financial Crisis

As central bankers, finance ministers, and government policy makers head off to their annual gathering at Jackson Hole, Wyoming, this August, 24-26, 2017, the key topic is whether the leading central banks in North America and Europe will continue to raise interest rates this year; another topic high on the agenda is when the three major central banks – the Federal Reserve, European Central Bank and Bank of England – might begin to sell off their combined $9.8 trillion dollar balance sheets that they accumulated since the 2008-09 banking crisis.

But the more fundamental question – little discussed by central bankers and academics alike – is what are the likely effects of further immediate rate hikes and/or commencement of central banks’ balance sheet reductions? The assumption is further rate hikes and sell-offs will have little negative impact on the real economy or financial markets. But will they? The effects of hikes and sell off will prove the opposite of what they predict.

Central banks in the US and Europe were grossly in error predicting in 2008 that massive liquidity injections and zero interest rates would re-stimulate their economies and return them to pre-crisis real GDP growth rates. They are now about to repeat a similar error, as they presume that raising those rates, and retracting excess liquidity by selling off balance sheets, will not have a significant negative impact on the real economy or financial markets.

Central banks’ balance sheets have been growing for almost nine years, driven by programs of zero-bound (ZIRP) interest rates and the introduction of firehose liquidity injections enabled by quantitative easing, QE, bond and other securities purchases.

After eight years, the official consensus among central bankers and government policy makers is that the 2008 shift to unlimited central bank liquidity and zero (or below) interest rates is now over. The front page business press and media lead story is that central banks are now about to embark collectively in a new direction – raising their benchmark rates and selling off their massive, bloated balance sheets. But don’t bet on it. They may find sooner, rather than later, that rates cannot be raised much higher and that balance sheets—now totaling $9.8 trillion for the US, UK and Europe alone—may not be reduced much, if at all, without provoking a further slowdown of their still chronically weak real economic recoveries, or without precipitating a serious contraction in equity, bond and other financial asset markets.

Globally, balance sheet totals are actually far greater than the $9.8 trillion accumulated to date by the big 3 central banks—the Fed, Bank of England, and European Central Bank. When other major central banks, like Switzerland’s, Sweden’s, Canada’s and others are added, it’s well more than $10 trillion. And then there’s the nearly $5 trillion balance sheet of the Bank of Japan and the more than $5 trillion of the People’s Bank of China. Worldwide, central banks’ balance sheets therefore exceed well over $20 trillion…with the total still growing.
It’s equally important to understand that the $20 trillion in central bank balance sheet debt essentially represents bad debt from banks, corporations, and private investors that was in effect transferred from their private balance sheets to the balance sheets of the central banks as a result of nine years of bailout via QE (quantitative easing), zero interest rate free money, and other policies of the central banks. The central banks bailed out the capitalist system in 2008-09 by shifting the bad debts to themselves. In the course of the last 9 years, the private system loaded itself up on still more debt than it had in 2007. Can the central banks, already bloated with $20 trillion bail out bankers and friends once again? That’s the question. Attempting to unload the $20 trillion to make room for the next bailout—as the central banks now propose to do—may result, however, in precipitating the next crisis. That’s the contradiction.

Attempting to sell off such massive balance sheet holdings will prove far more daunting than those central banks now anticipate. And their coordinated raising of interest rates risks precipitating another recession – given their fundamentally weak economies with chronic low bank lending, slowing investment, stagnating productivity, contracting public investment, and lack of real wage income gains. For the global economy has undergone a major structural change in recent decades that has been rendering central bank interest rate policies increasingly ineffective with regard to stimulating real investment and growth, while simultaneously contributing to further financial fragility as well.1

The US Economy is Fragile and Weakening—Not Robust and Stable

All eyes are on the US central bank, the Fed, and what signals it gives at the Jackson Hole August 24-26 gathering, and the Fed’s subsequent policy committee in September. Will it continue to raise rates? Will it announce formally a schedule for balance sheet reduction in September? If the latter, will the announcement of sell-off be so minimal and token that it will generate a mere 0.25% hike in rates by year end 2018, as some pundits predict? Or will the psychological effects on investors – who have enjoyed eight years of record equity, bond, property, and derivatives asset price and thus extraordinary capital gains – consider the announcement as the signal to “cash in” and take their money and run, given the bubble levels already attained in equities, some bond markets, and real estate? And should the Fed continue to raise interest rates at a pace of 3 to 4 a year, what will be the impact on the US real economy?
Economic potholes are beginning to appear in a number of places. Bank lending to US business has declined sharply, now growing at only 2%; consumer loans for auto, mortgages and credit cards have halved over the past year; real investment and productivity have nearly collapsed; the so-called “Trump Bump” has dissipated; government investment has contracted below 2007 levels and infrastructure spending is still but a discussion envisioned for 2019 at the earliest, if at all; and job growth has been consistently low quality, resulting in wage stagnation or worse for the vast majority of the labor force.

In this unstable environment the Fed has nonetheless has announced plans to continue to raise interest rates and to begin selling off its balance sheet. The question is just how much and when? Consensus thinking at the Fed is that rates can continue rising 3 to 4 times a year at .25 basis points a crack through 2019 without serious negative effects. And that the Fed’s balance sheet can start selling off immediately in 2017, initially at a modest rate of $10 billion a month, accelerating further at a later date.

But these were the same central bankers who believed their QE and zero bound rate programs would return the US real economy to robust growth by 2010 but didn’t; who maintained the Fed’s massive liquidity injections would attain a 2% goods and services inflation rate, which it still hasn’t; who argued that once unemployment fell to 4.5% (in the US), wage growth and consumption would return to past trends and stimulate the economy, which has yet to occur; and who argued in 2008, also incorrectly, that Fed QE programs providing bankers virtually free money would stimulate bank lending and in turn real investment and growth. The Fed’s latest predictions could prove no more correct about the consequences of further rate hikes and balance sheet reductions than they were about QE, ZIRP, and all the rest for the past eight years.

It’s Not Your Grandpa’s Global Economy

To assume that selling off that magnitude of securities – even if slowly and over extended time – will not have an appreciable impact on nominal interest rates is the kind of assumption that resulted in previous predictive errors circa 2008 since the possible effects on investors’ psychological expectations of more rate hikes and balance sheet selling are completely unknown.

After eight years of treating symptoms and not the disease, the global financial system has become addicted to super-low rates and to continued central bank excess liquidity provisioning. What started in 2008 as a massive, somewhat coordinated central bank lender of last resort experiment – i.e. global bank bailout – has over the past eight years evolved into a more or less permanent subsidisation of the private banking and financial systems by central banks. The system has become addicted to free money. And like all addictions, the habit won’t be broken easily. That means central bankers’ plans to raise interest rates in the immediate months ahead will likely “hit a wall” well before the announced rate levels they are projecting. Plans to sell off balance sheets will almost certainly be limited to the US Fed for some time. The ECB and BOE – as well as Bank of Japan and others – will wait and see what the Fed does. The Fed will proceed at a snails pace that will represent little more than mere tokenism, and in the event of further slowing of real GDP growth, or US financial markets correcting in a major way, it will halt selling altogether. In short, there will be little Fed balance sheet reduction before the next recession, and a continued escalation of balance sheets by central banks globally. Central banks will enter the next recession with further bloated balance sheets.

After eight years of treating symptoms and not the disease, the global financial system has become addicted to super-low rates and to continued central bank excess liquidity provisioning.

The Fed is thus on the verge of another major disastrous monetary policy shift and experiment. It will be unable to raise interest rates as it has announced, by 3 to 4 times a year for the next two years. Nor will it be able to sell off much of its current balance sheet, since anything but token adjustments will accelerate rates even higher. In this writer’s opinion, the federal funds rate cannot be raised above 2%, or the 10 year Treasury yield much above 3%, without precipitating either a serious financial market correction or an abrupt slowing of real economic growth, or both.

What the eight years since the 2008-09 financial crash and great recession reveals is that the major central banks, led by the Fed, have painted themselves in a corner. The massive liquidity provided to their banking systems – engineered by zero rates and QEs – failed even to adequately bail out their banks. Today more than $10 trillion in non-performing bank loans still overhang the major economies, despite the more than $20 trillion added to their central bank balance sheets in just the past eight years.

The fundamental changes in the global economy and radical restructuring of financial, capital and labor markets have severely blunted central banks’ main monetary tool of interest rate management. Just as reduction of rates have little positive effect on stimulating real investment and economic growth, rising rates will have a greater negative impact than anticipated on investment and growth. The Fed and other central banks may soon discover this should they raise rates much faster and further or engage in more than token balance sheet reduction.

Central bankers at the Fed, the BOE and ECB will of course argue the contrary.

They will promise the economy can sustain further significant rate hikes and can commence selling its balance sheet without severe negative consequences. But these are the same people who in 2008 promised rapid and robust recovery from QE and ZIRP programs that didn’t happen. What happened was an unprecedented acceleration in financial asset markets as equity and bond prices surged for eight years, high end real estate prices rose to prior levels, derivatives boomed, gold and crypto-currencies escalated in value, and income inequality soared to record levels – all fueled by the massive $10 trillion central bank liquidity injections that drove interest rates to zero or below. And now they tell us they plan to raise those rates without serious negative effects. Anyone want to buy the Brooklyn bridge? I think they’re also trying to sell that as well.

About the Author
Dr. Jack Rasmus is author of the just published book, “Central Bankers at the End of Their Ropes? Monetary Policy and the Next Depression”, Clarity Press, July 2017, available for purchase at discount from this website; and the previously published “Systemic Fragility in the Global Economy”, also by Clarity Press, January 2016. For more information: He hosts the radio show, Alternative Visions, on the Progressive Radio Network.

1. For the author’s 2016 analysis of global financial restructuring, Systemic Fragility in the Global Economy, Clarity Press, January 2016. How central banks’ interest rate policies are failing is addressed in more detail in the just published book, Central Bankers at the End of Their Ropes: Monetary Policy and the Next Depression, by Jack Rasmus, Clarity Press, July 2017.

posted July 27, 2017
The Limits of Central Banks’ Emerging Policy Shift’

The following article was published in the European Financial Review, July 20, 2017, summarizing and presenting major themes from my just published, latest book, ‘Central Bankers at the End of Their Ropes’, Clarity Press, July 2017.

THE LIMITS OF CENTRAL BANKS’ EMERGING POLICY SHIFT’, by Dr. Jack Rasmus, European Financial Review, July 20, 2017.

“The major central banks have a plan, but its consequences are questionable. In this article, Dr. Jack Rasmus analyses past and present factors of the global economy, from balance sheets to policy shifts, which have significant influence on the possible future of the financial industry and the global society as a whole.

As central bankers, finance ministers, and government policy makers head off to their annual gathering at Jackson Hole, Wyoming, this August, 24-26, 2017, the key topic is whether the leading central banks in North America and Europe will continue to raise interest rates this year; another topic high on the agenda is when the three major central banks – the Federal Reserve, European Central Bank and Bank of England – might begin to sell off their combined $9.8 trillion dollar balance sheets that they accumulated since the 2008-09 banking crisis.

But the more fundamental question – little discussed by central bankers and academics alike – is what are the likely effects of further immediate rate hikes and/or commencement of central banks’ balance sheet reductions? The assumption is further rate hikes and sell-offs will have little negative impact on the real economy or financial markets. But will they?

Central banks in the US and Europe were grossly in error predicting in 2008 that massive liquidity injections and zero interest rates would re-stimulate their economies and return them to pre-crisis real GDP growth rates. They are now about to repeat a similar error, as they presume that raising those rates, and retracting excess liquidity by selling off balance sheets, will not have a significant negative impact on the real economy or financial markets.

The Central Banks Monetary Policy Shift

Central banks’ balance sheets have been growing for almost nine years, driven by programmes of zero-bound (ZIRP) interest rates and the introduction of firehose liquidity injections enabled by quantitative easing, QE, bond and other securities purchases.

After eight years, the official consensus among central bankers and government policy makers is that the 2008 shift to unlimited central bank liquidity and zero (or below) interest rates is now over. The front page business press and media lead story is that central banks are now about to embark collectively in a new direction – raising their benchmark rates and selling off their massive, bloated balance sheets. But don’t bet on it. They may find sooner, rather than later, that rates cannot be raised much higher and that balance sheets may not be reduced much, if at all, without provoking a further slowdown of their still chronically weak real economic recoveries, or without precipitating a serious contraction in equity, bond and other financial asset markets.

In 2008-09 the Federal Reserve quickly dropped its benchmark federal funds rate from 5.25% to a mere 0.15% by January 2009. It followed with its initial bond buying QE1 programme in early 2009. By 2013 the Fed’s net balance sheet rose to $4.5 trillion.

The front page business press and media lead story is that central banks are now about to embark collectively in a new direction – raising their benchmark rates and selling off their massive, bloated balance sheets. But don’t bet on it.
The Bank of England promptly followed the Fed. It reduced its rates from 5% in September 2008 to 0.5% by early 2009, followed by a launch of several QE-like bond and equity buying programmes and then its formal QE “Asset Purchase Plan” in early 2009. Its net balance sheet level rose to approximately $600 billion.

Lacking full central bank authority at the time of the 2008 crash, the European Central Bank lowered rates initially more slowly while injecting more than $2 trillion in liquidity by various pre-QE programmes from 2010 to 2014, eventually introducing its highly aggressive QE programme beginning early 2015. Its rate and liquidity programmes drove Eurozone sovereign nominal bond rates to negative levels, as its aggressive $2.5 trillion QE programme raised its balance sheet to more than $4.7 trillion.

That’s a combined balance sheet total of roughly $9.8 trillion as of mid-2017 for the three major central banks alone.

Globally, however, balance sheet totals are actually far greater than the $9.8 trillion. When other major central banks, like Switzerland’s, Sweden’s, Canada’s and others are added, it’s well more than $10 trillion. And then there’s the nearly $5 trillion balance sheet of the Bank of Japan and the more than $5 trillion of the People’s Bank of China. Worldwide, central banks’ balance sheets therefore exceed well over $20 trillion…with the total still growing.

Attempting to sell off such massive balance sheet holdings – even the $9.8 trillion of the three central banks in Europe and America – may prove far more daunting than those central banks now anticipate. And their coordinated raising of interest rates risks precipitating another recession – given their fundamentally weak economies with chronic low bank lending, slowing investment, stagnating productivity, contracting public investment, and lack of real wage income gains. For the global economy has undergone a major structural change in recent decades that has been rendering central bank interest rate policies increasingly ineffective with regard to stimulating real investment and growth, while simultaneously contributing to further financial fragility as well.1

The New Normal: Unstable Interest Rate Elasticity Effects

In 2008-09 all three central banks quickly reduced their benchmark rates and began to add trillions of dollars, pounds and euros to their balance sheets. But real investment and GDP growth lagged, and periodically stagnated in the US and UK, and even contracted again in the Eurozone. In economists’ jargon, the elasticity of real investment to interest rate cuts was highly “inelastic” – i.e. the collapse of rates and accelerated central bank liquidity produced insufficient real investment, employment, and wage incomes necessary to restore pre-crisis GDP growth.

Now that central banks are reversing those policies – with the Fed in the lead and the BOE and ECB expected to follow – a “mirror image” of the error of the past eight years may emerge: it will take very little in terms of rate hikes or balance sheet reductions (which will also raise rates) to generate a further contraction in real investment and growth, and may even precipitate a major correction in financial market prices.

In other words, the negative impact of pending rate hikes on investment may prove highly elastic, just as it proved in the past that rate cuts’ positive effects on real investment were highly inelastic.

This may seem anomalous – i.e. rate reductions post-2008 had little positive effect on real investment and growth, but rate hikes now will have a quick and major negative impact on investment and growth. But it is not. The same global forces and restructuring in financial, capital, and labour markets that have taken place in recent decades causally underlie both effects. The global economy crossed a threshold in 2008-09 that is still not very well understood by central bankers and economists alike. The anomaly is only apparent.2 The causes are the same.

What then are the likely scenarios with regard to the three central banks – Fed, ECB and BOE – in the next six to twelve months as they attempt to shift their policies of the preceding eight years by raising rates and selling off balance sheets?

Three Scenarios: BOE, ECB & the Fed

The Bank of England’s (BOE) initial QE experiment was temporarily halted when the Fed suspended expanding its QE programmes in 2013, but QE was re-introduced in 2016 in the wake of Brexit. As of mid-2017, moreover, the BOE shows no indication that it will not continue its QE programme and thereby expand its balance sheet. Embroiled an in increasing difficult implementation of Brexit, and what appears to be several more years of growing economic uncertainty, the UK economy has begun to show signs of weakening in recent months. The BOE will therefore continue to add liquidity, both by QE and traditional means, in order to prop up UK financial markets in the interim. Balance sheet sell off is thus not imminent anytime soon.

On the other hand, more likely is the BOE will follow the Fed should the latter continue to raise rates, raising its benchmark marginal lending or discount rate to prevent a further decline of the UK currency to ensure much needed money capital inflows and to slow rising import inflation that comes with currency decline. So expect more rate hikes from the BOE, as well as more balance sheet accumulation.

Nor will the ECB’s balance sheet be appreciably reduced any time soon. European Central Bank chair, Mario Draghi, plans to attend the Jackson Hole gathering of central bankers and friends. It will be his first appearance since three years ago, where in 2014 he signalled the ECB was planning to introduce its version of quantitative easing, QE, which it did in early 2015. But this time it is highly unlikely Draghi will signal the ECB to follow the Fed in any reduction of its own $4.7 trillion balance sheet. More likely is some ECB intent to slow its QE bond accumulation programme in 2018 – i.e. after it sees what the US Fed will do in what remains in 2017 and after it replaces current chair, Janet Yellen, with former Goldman Sachs banker, Gary Cohn, next February 2018. Meanwhile, the ECB will allow rates to drift upward from their former negative and zero levels. Like the BOE’s, the ECB’s balance sheet will therefore continue to grow, as rates are allowed to rise in coordination with the Fed.

All eyes are therefore on the US central bank, the Fed, and what signals it gives, and its follow up, to the Jackson Hole August gathering, and the Fed’s policy committee in September. Will it continue to raise rates? Will it announce formally a schedule for balance sheet reduction in September? If the latter, will the announcement of sell-off be so minimal and token that it will generate a mere 0.25% hike in rates by year end 2018, as some pundits predict? Or will the psychological effects on investors – who have enjoyed eight years of record equity, bond, property, and derivatives asset price and thus extraordinary capital gains – consider the announcement as the signal to “cash in” and take their money and run, given the bubble levels already attained in equities, some bond markets, and real estate? And should the Fed continue to raise interest rates at a pace of 3 to 4 a year, what will be the impact on the US real economy?

Economic potholes are beginning to appear in a number of places. Bank lending to US business has declined sharply, now growing at only 2%; consumer loans for auto, mortgages and credit cards have halved over the past year; real investment and productivity have nearly collapsed; the so-called “Trump Bump” has dissipated; government investment has contracted below 2007 levels and infrastructure spending is still but a discussion envisioned for 2019 at the earliest, if at all; and job growth has been consistently low quality, resulting in wage stagnation or worse for the vast majority of the labour force.

In this unstable environment the Fed has nonetheless has announced plans to continue to raise interest rates and to begin selling off its balance sheet. The question is just how much and when? Consensus thinking at the Fed is that rates can continue rising 3 to 4 times a year at .25 basis points a crack through 2019 without serious negative effects. And that the Fed’s balance sheet can start selling off immediately in 2017, initially at a modest rate of $10 billion a month, accelerating further at a later date.

But these were the same central bankers who believed their QE and zero bound rate programmes would return the US real economy to robust growth by 2010 but didn’t; who maintained the Fed’s massive liquidity injections would attain a 2% goods and services inflation rate, which it still hasn’t; who argued that once unemployment fell to 4.5% (in the US), wage growth and consumption would return to past trends and stimulate the economy, which has yet to occur; and who argued in 2008, also incorrectly, that Fed QE programmes providing bankers virtually free money would stimulate bank lending and in turn real investment and growth. The Fed’s latest predictions could prove no more correct about the consequences of further rate hikes and balance sheet reductions than they were about QE, ZIRP, and all the rest for the past eight years.

It’s Not Your Grandpa’s Global Economy

To assume that selling off that magnitude of securities – even if slowly and over extended time – will not have an appreciable impact on nominal interest rates is the kind of assumption that resulted in previous predictive errors circa 2008 since the possible effects on investors’ psychological expectations of more rate hikes and balance sheet selling are completely unknown.

After eight years of treating symptoms and not the disease, the global financial system has become addicted to super-low rates and to continued central bank excess liquidity provisioning. What started in 2008 as a massive, somewhat coordinated central bank lender of last resort experiment – i.e. global bank bailout – has over the past eight years evolved into a more or less permanent subsidisation of the private banking and financial systems by central banks. The system has become addicted to free money. And like all addictions, the habit won’t be broken easily. That means central bankers’ plans to raise interest rates in the immediate months ahead will likely “hit a wall” well before the announced rate levels they are projecting. Plans to sell off balance sheets will almost certainly be limited to the US Fed for some time. The ECB and BOE – as well as Bank of Japan and others – will wait and see what the Fed does. The Fed will proceed at a snails pace that will represent little more than mere tokenism, and in the event of further slowing of real GDP growth, or US financial markets correcting in a major way, it will halt selling altogether. In short, there will be little Fed balance sheet reduction before the next recession, and a continued escalation of balance sheets by central banks globally. Central banks will enter the next recession with further bloated balance sheets.

After eight years of treating symptoms and not the disease, the global financial system has become addicted to super-low rates and to continued central bank excess liquidity provisioning.

The Fed is thus on the verge of another major disastrous monetary policy shift and experiment. It will be unable to raise interest rates as it has announced, by 3 to 4 times a year for the next two years. Nor will it be able to sell off much of its current balance sheet, since anything but token adjustments will accelerate rates even higher. In this writer’s opinion, the federal funds rate cannot be raised above 2%, or the 10 year Treasury yield much above 3%, without precipitating either a serious financial market correction or an abrupt slowing of real economic growth, or both.

What the eight years since the 2008-09 financial crash and great recession reveals is that the major central banks, led by the Fed, have painted themselves in a corner. The massive liquidity provided to their banking systems – engineered by zero rates and QEs – failed even to adequately bail out their banks. Today more than $10 trillion in non-performing bank loans still overhang the major economies, despite the more than $20 trillion added to their central bank balance sheets in just the past eight years.

The fundamental changes in the global economy and radical restructuring of financial, capital and labour markets have severely blunted central banks’ main monetary tool of interest rate management.

The fundamental changes in the global economy and radical restructuring of financial, capital and labour markets have severely blunted central banks’ main monetary tool of interest rate management. Just as reduction of rates have little positive effect on stimulating real investment and economic growth, rising rates will have a greater negative impact than anticipated on investment and growth. The Fed and other central banks may soon discover this should they raise rates much faster and further or engage in more than token balance sheet reduction.
Central bankers at the Fed, the BOE and ECB will of course argue the contrary.

They will promise the economy can sustain further significant rate hikes and can commence selling its balance sheet without severe negative consequences. But these are the same people who in 2008 promised rapid and robust recovery from QE and ZIRP programmes that didn’t happen. What happened was an unprecedented acceleration in financial asset markets as equity and bond prices surged for eight years, high end real estate prices rose to prior levels, derivatives boomed, gold and crypto-currencies escalated in value, and income inequality soared to record levels – all fueled by the massive $10 trillion central bank liquidity injections that drove interest rates to zero or below. And now they tell us they plan to raise those rates without serious negative effects. Anyone want to buy the Brooklyn bridge? I think they’re also trying to sell that as well.

About the Author

Dr. Jack Rasmus is author of the just published book, “Central Bankers at the End of Their Ropes? Monetary Policy and the Next Depression”, Clarity Press, July 2017, and the previously published “Systemic Fragility in the Global Economy”, also by Clarity Press, January 2016. For more information: He teaches economics at St. Marys College in Moraga, California, and hosts the radio show, Alternative Visions, on the Progressive Radio Network. He blogs at and his twitter handle is @drjackrasmus.

1. For the author’s 2016 analysis of global financial restructuring, Systemic Fragility in the Global Economy, Clarity Press, January 2016.
2. The theme of how central banks’ interest rate policies are failing is addressed in more detail in the just published book, Central Bankers at the End of Their Ropes: Monetary Policy and the Next Depression, by Jack Rasmus, Clarity Press, July 2017.

posted July 6, 2017
Central Bankers at the End of Their Ropes?–Monetary Policy & the Next Depression’

My most recent book will be published this month, entitled “Central Bankers at the End of Their Ropes?: Monetary Policy & the Next Depression".

Here’s the TABLE OF CONTENTS, MAIN THEMES, and SYNOPSIS of the book with an expanded description of table of contents. Check out this blog and my website for ordering information this coming weekend. For more information in the meantime, check out the publisher, Clarity Press, website at:


Chapter 1: Problems & Contradictions of Central Banking
Chapter 2: A Brief History of Central Banking
Chapter 3: The US Federal Reserve Bank: Origins & Toxic Legacies
Chapter 4: Greenspan’s Bank: The ‘Typhon’ Monster Released
Chapter 5: Bernanke’s Bank: Greenspan’s ‘Put’ On Steroids
Chapter 6: The Bank of Japan: Harbinger of Things That Came
Chapter 7: The European Central Bank under German Hegemony
Chapter 8: The Bank of England’s Last Hurrah: From QE to Brexit
Chapter 9: The People’s Bank of China Chases Its Shadows
Chapter 10: Yellen’s Bank: From Taper Tantrums to Trump Trade
Chapter 11: Why Central Banks Fail
Conclusion: Revolutionizing Central Banking in the Public Interest:
Embedding Change via Constitutional Amendment

Theme #1: Central banks of the advanced economies—despite having been assigned by their respective economic and political elites the role of primary economic policy institution—have failed since 2008 to achieve their major objectives of long run stabilization of their banking systems or the restoration of pre-2008 economic growth.

Theme #2: The decades of central liquidity injections since the 1970s, that produced the 2008-09 crisis in the first place, then became the central banks’ solution to that crisis; that same liquidity solution, 2009-2016, has become the cause of the next crisis, as tens of trillions of dollars of even more liquidity-enabled debt has since 2008 been piled on the original trillions before 2008.

Theme #3: Central banks’ function of lender of last resort, in the past designed to provide excess liquidity in instances of banking crises, has in the 21st century been transformed into a new function: the subsidization of the private banking system by means of constant central bank excess liquidity. The private banking system today has become addicted to, and increasingly dependent upon, significant continuing infusions of liquidity by central banks.

Theme #4: Central banks have failed to evolve apace with the rapid transformations of the global private capitalist banking system. Structural change in the global financial system, the continuing fragility of banking systems, and excess levels of debt and leveraging mean that interest rates post-2016 cannot be raised very much, and central banks’ balance sheets cannot be reduced to any significant extent, without provoking a widespread credit crisis throughout the private banking system.

Theme #5: Central banks must undergo fundamental restructuring and change. That restructuring must include the democratization of decision making and a redirecting of central banks toward a greater direct service in the public interest. New functions, new targets and new tools will be required.

SYNOPSIS with Expanded Chapters Descriptions:

Central banks emerged from the 2007-09 crisis as the primary economic policy institutions in the advanced economies. Tasked not only with stabilizing the banking system during the worst financial crisis since the great depression, central banks were given the additional task as well of restoring economic growth to pre-crisis historical levels. Fiscal policy as government spending and public investment was relegated to a minor role at best; at worst, and more frequently than not, recast as fiscal austerity rolling back government spending and investment.

The banking systems in the advanced economies—and indeed throughout the global economy—were temporarily stabilized after 2009 but only to a degree, and at a cost of tens of trillions of dollars, euros, pounds, yen and other currencies. Cumulative QEs alone amounted to nearly $15 trillion central bank investor and bank bailouts. Nevertheless, deep pockets of banking weakness and fragility still remain a decade after the 2008-09. Non-Performing bank loans in the advanced economies still exceed $10 trillion. Pre-2008 private and corporate debt has been only transferred to central banks’ balance sheets, not eliminated. Post 2008 private business debt has again been allowed to accelerate by tens of trillions in dollars and other major currencies. Meanwhile, household and government debt levels have continued to climb, while the ability to service that debt with wage income growth and tax revenue has stagnated or declined.

With their massive liquidity injections, the central banks have been the original enablers of the unprecedented past—and continuing—debt escalation, and are thus ultimately responsible for its consequences. Nor have central they fared any better with regard to their other mission of restoring real economic growth to pre-crisis levels. Rates of growth in GDP have lagged significantly from pre-crisis levels, and in some regions—like Europe and Japan—have stagnated or worse over the long term. Global real investment, productivity and even trade have meanwhile all slowed under the hegemony of global central bank policy regimes since 2008.

The central banks’ decades-long, chronic injections of liquidity into the global private banking system since the 1970s enabled the record levels of debt and leveraged borrowing in the ensuing decades, culminating in the financial crash of 2008-09. The same central banks provided even greater magnitudes liquidity to bailout their banking systems—initially the US and UK in 2008-09, then Europe after 2010, and more recently Japan and China. The bailout and liquidity continued for nine years.
The book then considers the question: why central banks of the advanced economies have been fueling the massive liquidity binge since the 1970s while failing to restore real economic growth since 2008? It concludes the following combination of forces and developments have been responsible:

• The collapse of the Bretton Woods International Monetary System in 1973 and central role assigned to central banks to stabilize currencies and economies
• The ascent of Neoliberal policies in the US-UK after 1978 and their adopted by others
• Deregulation of international money capital flows in the 1980s and accompanying domestic financial deregulation
• Rapid and radical restructuring of global financial institutions, markets, and products
• Rise and growing political influence of a new global finance capital elite
• Economic elites’ shift to fiscal austerity and elevation of monetary policy as primary
• Unprecedented rapid technological changes transforming the very nature of money and credit and its effects on liquidity, debt, and financial markets’ contagion
• Growing frequency and magnitudes of financial instability events globally and consequent more frequent recessions and slower growth
• Increasing demands on central banks to expand their lender of last resort function, and the bailout of banks and financial systems, while assuming primary responsibility for generating real economic growth


In Chapter One the point is raised that these new forces have led to growing contradictions between the central banks and the broader global capitalist banking system. Several of the more fundamental contradictions are listed and briefly described in the chapter, to be returned to for further consideration later at the end of the book under the subject of why central banks have been failing to achieve their broad objectives as well as their basic functions and targets.

Chapter Two describes the evolution of central banking over the past two centuries, as well as evolution of central banks’ functions, targets and monetary policy tools. The point is made that the evolution of central banking since the late 20th century has increasingly failed to keep up with the more rapid restructuring and change in the global private banking system. Falling further behind the curve of global capitalist change, central banks’ consequently have been further failing to adequately perform their primary functions of money supply management, bank supervision, and lender of last resort; have failed to attain their price level and other targets; and their monetary tools have deteriorated in terms of effectiveness in performing those functions and attaining those targets.

In the core chapters Three through Ten of the book describe the evolution of monetary policies of each of the advanced economy central banks in turn—and to what extent each central bank performed its primary functions, attained its declared targets, and how effective have been its tools—whether traditional or the more recently experimental like quantitative easing (QE), zero bound rates (ZIRP), negative rates (NIRP), forward guidance and other innovations.

In chapters Three to Five special consideration is given to the US central bank, the Federal Reserve, from its origins in 1913 to the present. Chapter Three describes how the Fed was created and run by the private banks directly from 1913 to 1935, enabling the financial asset bubbles of the 1920s that burst in the great depression that followed; how the Fed failed miserably to manage the money supply, adequately supervise the banks, and failed to function as lender of last resort during the first four years of the depression, 1929-1933.

Chapter Four describes how the Roosevelt reforms of 1933-35 were insufficient to prevent indirect private banker interests hegemony over the Fed over the long run; how those interests came to dominate the Fed once again during the period 1951 to 1986; and how the Fed under its chair, Alan Greenspan, 1986-2006, came progressively to elevate central bank monetary policy over government fiscal spending. Chapter Four describes how US central bank policy of massive liquidity injections became a norm under Greenspan’s 20 year tenure, and how Greenspan’s liquidity ‘put’ in turn accelerated debt and levering, thus contributing to a series of US and global asset bubbles from the late 1980s to 2006 that culminated in the housing and derivatives great credit bubble and crash of 2007-09.

Chapter Five addresses the Fed under chair, Ben Bernanke, and describes how his policies were a continuation of Greenspan’s until the 2008 crash, at which time Bernanke’s Bank became Greenspan ‘on steroids’ so far as central bank liquidity and interest rate policies are concerned. The chapter debunks Greenspan notions of ‘conundrums’ and Bernanke’s ‘global savings gluts’ that were proposed to explain away the failure of Fed policies, and explains why Fed policy has been to always assiduously avoid interceding to prevent financial asset price bubbles. The chapter concludes with an analysis of the Bernanke Fed, 2006-2014, as to what extent it achieved or not its primary functions and targets. Detailed considered is given to the Bernanke bank’s innovations in new monetary policy tools like QE and ZIRP, which are then critiqued for their effectiveness and unanticipated consequences.

Chapters Six through Nine consider in turn the evolution and performance of the other major central banks, including the Bank of Japan (BOJ), European Central Bank (ECB), Bank of England (BOE), and the People’s Bank of China (PBOC), respectively. Addressing the period from roughly 1990 to the present, the chapters describe the evolution of central banking functions of money supply management, bank supervision, and lender of last resort for each of the central banks, as well as evolution in terms of the targets and the monetary tools they employed. Special attention is given to QE, ZIRP and NIRP programs and tools in Japan and Europe and why price targeting has failed so miserably in both nonetheless, despite trillions of euros and yen liquidity injections by their central banks. Why fiscal austerity has been the most extreme in both, and in the UK, and why growth rates have stagnated or slipped in and out of recession. Chapter Thirteen on China considers the unique case of the PBOC and China’s equally unique banking structure, as well as its contrary policies of fiscal stimulus as government spending and investment. Nevertheless, it is argued China and its PBOC have after 2011 increasingly resorted to massive liquidity injections accompanying that fiscal stimulus, with the result of business and household debt exploding by 210% and more than $20 trillion since 2007.

Chapter Ten returns to the US central bank, the Fed, under the chair of Janet Yellen since 2014. Yellen Fed policies through 2016 are described as the extension of the Bernanke Fed in terms of functions, targets and tools. How the Yellen Fed has performed in those terms is examined. Special challenges faced by the Yellen Fed are discussed, including raising interest rates from near zero, the effects of sell off of the Fed’s balance sheet, how to supervise the banks in an environment of renewed financial regulation rollbacks, how to maintain central bank monetary policy hegemony amongst growing calls for fiscal infrastructure government spending, and how to prepare new tools for the next financial crisis and bank bailouts.

Chapter Eleven returns to broader themes associated with the failings and challenges confronting central banking in the 21st century. The chapter revisits and summarizes the reasons why central banks have been failing with regard to functions, targets and tools effectiveness. Official excuses for that failure are critiqued and rejected. Alternative reasons are offered, including the declining effects of interest rates on investment, the relative shift to financial asset investing at the expense of real investment, failure of central banks to intervene and prevent financial asset bubbles, the purposeful fragmentation of bank supervision across regulatory institutions, mismanagement of the money supply, monetary tools ineffectiveness and contradictions, and central bankers’ continuing adherence to ideological notions of the mid-20th century that no longer hold true in the 21st—like the Taylor Rule, Phillips curves, and, in the case of ZIRP and NIRP, the idea that the cost of borrowing is what first and foremost determines investment.

The Concluding Chapter raises the question: what reforms and restructuring of central banks’ decision making processes, tools, targets, functions, as well as their very mission and objectives, are necessary if central banks are to become useful institutions for society in general? Central banks, as currently structured, have failed to keep pace with the more rapid restructuring and change in the private capitalist banking system. Contradictions have arisen in the gap that unbalanced evolution has created. Failure of performance in turn has been the consequence of failure to restructure and to evolve in tandem with the private banking system.

A Constitutional Amendment is therefore proposed, along with 20 articles of Enabling Legislation, to restructure the US Fed by democratizing its decision making and redirecting it to serve in the broader public interest, and not just the interests of the private banking system. The amendment and legislation defines a new mission and general goals for the Fed—as well as new targets, tools and new functions—to create a new kind of public interest Federal Reserve for the 21st century.

posted May 20, 2017
Brazil’s Economy: Canary in the Global Economy Coalmine?

Brazil: Canary in the EME Coalmine? from Chapter 3 “Emerging Markets’ Perfect Storm’:

No country reflects the condition and fate of EMEs better perhaps than Brazil. It’s both a major commodity and manufactured goods exporting EME. It’s also recently become a player in the oil commodity production ranks of EMEs. Its biggest trading partner is China, to which it sells commodities of all types—soybeans, iron ore, beef, oil and more. Its exports to China grew fivefold from 2002 to 2014. It is part of the five nation ‘BRICS’ group with significant south-south trading with South Africa, India, Russia, as well as China. It also trades in significant volume with Europe, as well as the US. It is an agricultural powerhouse, a resource and commodity producer of major global weight, and it receives large sums of money capital inflows from AEs.

In 2010, as the EMEs boomed, Brazil’s growth in GDP terms expanded at a 7.6% annual rate. It had a trade surplus of exports over imports of $20 billion. China may have been the source of much of Brazil’s demand, but US and EU central banks’ massive liquidity injections financed the investment and expansion of production that made possible Brazil’s increased output that it sold to China and other economies. It was China demand but US credit and Brazil debt-financed expansion as well. As in the case of virtually all the major EMEs, that began to shift around 2013-14. Both China demand began to slow and US-UK money inflows declined and began to reverse. In 2014 Brazil’s GDP had already declined to a mere 0.1%, compared to the average of 4% for the preceding four years.

In 2015 Brazil entered a recession, with GDP falling -0.7% in the first quarter and -1.9% in the second. The second half of 2015 will undoubtedly prove much worse, resulting in what the Brazilian press is already calling ‘the worst recession since the Great Depression of the 1930s’.

Capital flight has been continuing through the first seven months of 2015, averaging $5-$6 billion a month in outflow from the country. In the second half of 2014 it was even higher. The slowing of the capital outflow has been the result of Brazil sharply raising its domestic interest rates—one of the few EMEs so far having taken that drastic action—in order to attract capital or prevent its fleeing. Brazilian domestic interest rates have risen to 14.25%, among the highest of the EMEs. That choice to give priority to attract foreign investment has come at a major price, however, thrusting Brazil’s economy quickly into a deep recession. The choice did not stop the capital outflow, just slowed it. But it did bring Brazil’s economy to a virtual halt. The outcome is a clear warning to EMEs that solutions that target soliciting foreign money capital are likely to prove disastrous. The forces pulling money capital out of the EMEs are just too large in the current situation. The liquidity is going to flow back to the AEs and there’s no stopping it. Raising rates, as Brazil has, will only deliver a solution that’s worse than the problem.

Nor did that choice to raise rates to try to slow capital outflow stop the decline in Brazil’s currency, the Real, which has fallen 37% in the past year. The currency decline of that dimension should, in theory, stimulate a country’s exports. But it hasn’t, for the various reasons previously noted: in current conditions a currency decline’s positive effects on export growth is more than offset by other negative effects associated with currency volatility and capital flight.

What the Real’s freefall of 37% has done, however, is to sharply raise import goods inflation and the general inflation rate. Brazil’s inflation remained more or less steady in the 6%-6.5% range for much of 2013 and even fell to 5.9% in January 2015, but it has accelerated in 2015 to 9.6% at last estimate.

With nearly 10% inflation thus far in 2015 and with unemployment almost doubling, from a January 4.4% to 8.3% at latest estimate for July, Brazil has become mired in a swamp of stagflation—i.e. rising unemployment and rising inflation. With more than 500,000 workers laid off in just the first half of 2015, it is not surprising that social and political unrest has been rising fast in Brazil.

The near future may be even more unstable. Like many EMEs, Brazil during the boom period borrowed the liquidity offered by the AEs bankers and investors (made available by AE central banks to their bankers at virtually zero interest) to finance the expansion. That’s both government and private sector borrowing and thus debt. Brazil’s government debt as a percent of GDP surged in just 18 months from 53% to 63%. More important, private sector debt is now 70% of GDP, up from 30% in 2003. Much of that debt is ‘junk bond’ or ‘high yield’ debt borrowed at high interest rates and is dollar denominated. That means borrowed from US investors and their shadow banks and commercial banks and therefore payable back in dollars—dollars obtainable from export sales to US customers which are slowing. An idea of the poor quality of this debt is indicated by the fact that monthly interest payments for Brazilian private sector companies is already estimated to absorb 31% of their income.

With falling income from exports, with money capital fleeing the country and becoming inaccessible, and with ever higher interest necessary to refinance the debt when it comes due—Brazil’s private sector is extremely ‘financial fragile’. How fragile may soon be determined. Reportedly Brazil’s nonfinancial corporations’ have $50 billion in bonds that need to be refinanced just next year, 2016. And with export and income declining, foreign capital increasingly unavailable, and interest rates as 14.25%–it will be interesting to see just how Brazil will get that $50 billion refinanced? If the private sector cannot roll over those debts successfully, then far worse is yet to come in 2016 as companies default on their private sector debt.

Brazil’s monetary policy response to the EME crisis of collapsing demand and exports, falling currency values, capital flight, and domestic inflation and unemployment has been to raise interest rates. Brazil’s fiscal policy response has been no less counter-productive. Its fiscal response has been to cut government spending and budgets by $25 billion—i.e. to institute an austerity policy. Like its monetary policy response of raising rates, its fiscal policy response of austerity will only slow its real economy even further.

The lessons of Brazil are the lessons of the EMEs in general, as they face a deepening crisis, a crisis that originated not in the EMEs but first in the AEs and then in China. But attempting to stop the capital flight train that has already left the station and won’t be coming back’ (to use a metaphor) will fail. So too will fail competing for exports in a race to the bottom with the AEs. Japan and Europe are intent on driving down their currencies in order to obtain a slightly higher share of the shrinking global trade pie. The EMEs do not have the currency reserves or other resources to outlast them in a tit-for-tat currency war. Instead of trying to rely on somehow reversing AE money capital flows or on exports to AE markets as the way to recovery and growth, EMEs will have to try to find a way to mutually expand their economic relationships and forge new institutions among and between themselves as a ‘new model’ of EME growth. They did not ‘break the old EME model’; it was broken for them. And they cannot restore it since the AEs have decided to abandon it.

posted May 11, 2017
Is Trump Really President?

These are strange times in American politics. And stranger still is the emerging character of the Trump presidency. Events are appearing with growing frequency, raising the question who is really running the White House and the US government? Is Trump really the President?

Trump sits there on the second floor, spending late evenings into early mornings tweeting to the world. In itself, that’s politically weird. But even more strange is what he’s tweeting and the next day fallout. We hear about the aircraft carrier task force in Asia that was reportedly steaming at full speed to the North Korean coast a few weeks ago, only to learn soon after it was actually headed in the opposite direction to Australia. Did Donald imagine that? Was the US Navy informed or requested by its titular commander in chief to turn around and go north…and then didn’t? Was Trump’s command to go north perhaps countermanded by some head of Naval operations, or maybe someone else in the White House or government? Or did he just imagine it all and never even informed the Navy to head to Korea? All the possibilities are strange. Very strange.

And then there was the announcement by Trump that his big budget was going to be announced in a few days. It wasn’t even prepared. Government bureaucrats had to quickly slap something together in a couple of pages to provide to the press.

Trump did it again, tweeted announcing his big tax cuts. Again the bureaucrats were caught off guard and had to throw some general outline together and issue it to the press. All this happened after it was generally known that the tax cut proposals were not going to be developed until late summer, and that the Obamacare Repeal bill had to go forward first. The Obamacare repeal was a necessary prerequisite for the general tax cut. Its $592 billion in tax cuts for business and investors had to come first. Until it was resolved, it made no sense to publicize elements of the yet bigger tax cuts of trillions of dollars more scheduled to follow. But Trump tweeted it anyway, and the bureaucracy jumped, putting something down on paper. Who’s communicating what to whom? Is Donald just lobbing electronic policy missiles out of the second floor of the White House, hoping some bureaucrat will catch them before morning?
Or perhaps Trump is being allowed to sit up there on the second floor of the White House and do his tweet thing, while others actually run the government. By others, perhaps it is vice-president Pence in charge, working with some inside committee of key cabinet officers and the intelligence spooks in the NSA-CIA-FBI?

Is Trump being allowed to ‘play at President’ for public consumption, while the generals, spooks, and Goldman Sachs financial pirates run the show?

It’s hard to believe that the members of his administration and the government State bureaucracy knew in advance of Trump’s recent tweets welcoming Philippines President, Duterte, to the White House. Or that Trump would tweet recently that he’s willing to meet with North Korea’s president, for whom he, Trump, had great respect. You can imagine the political constipation that comment caused the spooks and the generals in charge of State, Defense, and National Security.

Last November 30, 2016 this writer wrote a piece predicting that Trump the right wing populist would be successfully ‘tamed’ by the political elites of this country that really run the show. I laid out some ideas how that would be accomplished. (see my blog, But I didn’t think it would happen so fast and so easily.

The past month has witnessed Trump doing a total ‘about face’ on virtually all his right wing populist proposals during the election. He’s backtracking so fast it’s a wonder he hasn’t tripped over himself. (Check that, he has). What explains his 180 degree turnabout?

Was his talk of right wing populism during the campaign all political election hype? Tell the people whatever they want to hear to get elected, and then go do whatever the moneybags really running the show want from you—which is big tax cuts, massive across-the-board deregulation, end the taxation on Obamacare and we don’t care what happens to the rest of it, give us some infrastructure spending deals that resurrect wheeling-dealing commercial property investments with big tax loopholes, and just tweak and rearrange existing free trade treaties.

So what we actually got so far from Trump during his first 100 days is government by ‘executive orders’—i.e. repealing environmental protections, gutting immigrants’ rights, going after sanctuary cities, opening up national monuments and parks to mining and cattle exploitation, subsidizing killer coal companies, attacking consumer protection, smoke and mirror changes to H1-B skilled worker import quotas that haven’t changed, gutting K-12 education and shifting funds to private schools from public, opening up offshore drilling, and so on. But elsewhere it’s been a wholesale retreat from his election positions, proposals and promises. Here’s a short list:

Trump does a reversal on China, from declaring it a currency manipulator to offering it major concessions at the Mar-a-Lago meeting, in exchange for help with North Korea. One wonders if China’s offshore islands expansion is also part of the deal.

From NATO is a waste of money and unnecessary, Trump shifts to NATO is the great bulwark against Russia. From Putin the great leader to Putin is responsible for Syria using poison gas–of which still no proof thereof by the way. (Is it true, or is it all in that great American tradition of ‘yellow cake’ (2003), ‘babies thrown from incubators’ (1990), ‘tonkin gulf’(1965), ‘the war on drugs’ (Panama invasion), ‘Soviets are in Grenada’, and ‘remember the Maine’ (Spanish-American War) incidents that always precede and justify US going to war).

From Mexico is going to pay for the wall, to there’ll be no wall (latest per Homeland Security Secretary). From dumping NAFTA, to ‘I’m not going to terminate NAFTA’ (Trump quote).
And then there’s Trump’s staged press conferences with companies like Carrier Corp., indicating they’re not going to export some jobs to Mexico for now (as they continue to plan to export still others at the same time). And the list of companies announcing jobs they intend to hire in the US without saying when, or that they already had planned to hire them anyway prior to the press conference.

From cancelling the TPP free trade deal (already killed in Congress), to declaring a reopening of the TTIP free trade deal with Europe. And what about the silent deal Trump struck with Japan’s prime minister, Shinzo Abe, when he was here? It’s been leaked that Japan will pick up the lead on the TPP renegotiations and the US will join it later. Or Mexico’s recent offer to the US to just apply the TPP terms to a new ‘reform’ of NAFTA by Mexico and the US? Watch both these back door free trade resurrections, they’re coming too.

And what about Trump’s organizational about face, with right wing ideologue Steve Bannon banished from the National Security Council and pro-Russia general Flynn banished from the government?
What I also find interesting is the intense media attack on Trump— focusing on his Russia connection, his tax returns, nepotism in the White House, his companies’ benefiting (a violation of the emoluments clause of the US constitution) and calls for impeachment in Congress—all of sudden all the above have disappeared from view in the media front page. They’ve been put on the back burner in Congress and the press. And there’s no more damaging leaks coming weekly from the intelligence spooks either. Instead, what we hear is talk about ‘now he’s coming around’, beginning to appear presidential! Is all that just coincidental? Hmmm.

Is this a presidency where the Donald gets to sit on the second floor of the White House and do his late night tweets, and the bureaucrats scurry the next day to clean up? Where Donald is brought downstairs to the oval office for Executive Order signings or occasional reporter interviews and then trotted back upstairs? Is it a presidency where he makes his late night calls to his moneybag friends, like the billionaire Mercers and others, to find out ‘how am I doing guys’? While the rest of the representatives of the economic and political elite run the show?

Is this a Trump presidency, or a government by Generals-Goldman Sachs-Pence, with son in law Kushner functioning as intermediary between them and the Donald? A government of second floor tweets and first floor executive order signing events?

The quality of the American presidency has been in steady decline for decades. From the crook Nixon to the inept peanut farmer, Carter; from the movie-actor, camera friendly Reagan to the morally sleezy opportunist Bill Clinton; from know-nothing George Bush to the super-cautious false progressive Obama; and now to the fake right populist, blowhard, tweety-bird called Donald Trump.

We’re going to need a lot of luck to get through the next three and a half years folks!

Jack Rasmus is the author of ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at His website is and twitter handle, @drjackrasmus.

posted May 11, 2017
Macron as President: EuroNeoliberalism Counterattacks

On May 7, 2016, France elected Emmanuel Macron, the former banker, as its next president. The voting result was 65% for Macron, a newcomer in the election cycle who didn’t even have a political party, but who did have the massive business backing and traditional political elites united behind him, providing unlimited media and financial assistance to his campaign.

Approximately 25% of all voters in France, the most in nearly fifty years (since 1969), abstained from voting, however. It is also estimated that 25% of Macron’s 65% vote margin were voters who voted ‘against Le Pen’ and the far right national front party, and did not vote ‘for’ Macron. How solid is Macron’s support, and whether the French people support what will be his continuation of European neoliberalism, remains to be seen.

Macron’s victory as an ‘independent’, with no party, just a ‘movement’ called En Marche, was made possible by several unique developments during the recent election cycle.

First was the convenient scandals that early on knocked out of the election cycle his other business-backed challengers, Juppe and Fillon. It appears the political elite may have encouraged the publicizing of the scandals in order to unite business, bureaucracy, traditional elites, and professional classes behind one candidate, the newcomer Macron. Business interests were thus united, while the left and right alternative parties were divided.

Another convenient development enabling Macron’s election victory was the failure of the French left to unite early behind a challenger. The Socialist party’s candidate, Benoit, was burdened with the massive failure of the Socialist Party that ruled France under Francois Holland, the outgoing president, who leaves office with barely 5% popularity. Benoit’s candidacy in part split the left alternative. The strongest ‘left challenge’ was led by a new face, Melenchon, who started late in the campaign and could not shift the election media-driven message from ‘vote for Macron to stop Le Pen and the far right’. Other left parties failed to unite behind Melenchon as well.

A tactical failure in the campaign appears to have been the ‘leaks’ posted on the internet about Macron’s campaign and backers. Whoever was behind them is unknown, but the leaks appeared just a hour before the ‘black out’ on the election last friday, not enough time for voters to digest the results. As in the US, the media and Macron are now claiming Russian hackers were behind the leaks.

Other similarities with the US 2016 election are also interesting. US voters last November rejected the US Democrat party’s neoliberal policies advocated and defended by Hillary Clinton, thinking they would get something else in Trump. Trump won by creating the appearance he was against these policies.

However, in just 100 days it is now clear Trump represents a continuation of the same US neoliberalism–with a nasty social twist of anti-immigrant, anti-environment, anti-social program overlaid on traditional pro-business tax cuts, deregulation, and bilateral free trade proposals.

Macron further represents a strategy to save European neoliberalism similar to that which Britain and the US economic elites put forward in the 1990s when they put Tony Blair and Bill Clinton in office.–i.e. so-called ‘new democrats’ at the time. Emmanuel Macron is France’s ‘new democrat’, and a reflection of elites in France putting a ’shiny new young face’ on its prime politician just as UK elites did with Tony Blair and US with Bill Clinton. Macron is thus the ‘Tony Clinton’ (or ‘Bill Blair’ if you prefer) of France. However sustaining a ‘Tony Blair’ or ‘Bill Clinton’ strategy and solution in France may not be possible at this juncture, nor in the case of France in general. Time will tell if the ’shiny young new face’ solution works in France, given its current discrediting in UK and US.

Macron is also a former banker, and therefore also represents the trend of a deepening influence and control of bankers and finance capitalists in the governments of the advanced economies like the US, UK, Japan and Europe in general.

In the US, big bankers like Goldman Sachs now run nearly all the key cabinet positions and agencies in the US administration under Trump. Under Obama in 2008, all the recommendations for cabinet-agency positions put forward by the megabank, Citigroup, were eventually adopted by Obama. France 2016 appears a continuation of this trend, as banker-finance capitalists maneuver in new ways to retain their dominance of the political system in the advanced economies in an age of growing economic disruptions.

Macron has promised to pick up the baton of ‘labor reform’ in France introduced by Socialist Party Holland. That means laws that will weaken unions, collective bargaining, allow firing of workers, eliminate strikes, cut social benefits, privatize the healthcare and education systems in France. So now the conflict in France moves from the electoral arena to the workplace. During the recent election cycle shopfloor resistance in France continued to grow rapidly. Many unreported short strikes were called to protest the plans to implement the new anti-worker labor laws. It is not unlike what began to occur in 1967 as DeGaulle and the capitalist parties laid out plans to strip workers of rights and benefits. That plan resulted in nationwide strikes and a shutdown of the economy and widespread protests called ‘May 1968′, which in turn led to the resignation of then president, DeGaulle. Will Macron’s presidency be a repeat? Is France now embarking on the same trajectory with Macron, who like deGaulle, has vowed to aggressively implement the anti labor reform laws? The largest union in France, the CGT, has already called for more intense opposition at the company level and preparation for a general strike. Whether Macron, a champion of the anti-labor laws is willing to stake his presidency on the direct conflict with labor at the economic level will be interesting to watch.

As US workers today cross their fingers and hope that Trump isn’t lying about bringing jobs back to the US (which he is), France’s workers may be preparing for a confrontation in coming months of a more united and militant kind. It will be interesting to see how far the Macron-Business-Banker elites in France are willing to go to face off the growing militancy ‘from below’ in the coming months.

In any event, with the election they have bought themselves some additional time. Watch the stock markets boom in Europe on Monday, as investors intensify their financial bets on the rise in stock markets in France, Europe and elsewhere and cash in on yet more capital gains and financial profits.

Jack Rasmus is author of the forthcoming book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Next Depression’, by Clarity Press, June 2017; and the previous ‘Systemic Fragility in the Global Economy’, Clarity, 2016 and ‘Looting Greece: A New Financial Imperialism Emerges’, Clarity, 2016. He blogs at

posted April 26, 2017
The Great American Tax Shift 1980-2005

Excerpt from ‘The Great American Tax Shift’ Chapter 2
The War at Home: Corporate Offensives from Reagan to Bush
Copyright 2004 Jack Rasmus

(For the evolution of US tax policy from 1913 to 1978, see the book)

The Coming Tax Storm: 1978

While Carter essentially did nothing about bracket creep and rising income taxes on workers and then turned and raised payroll taxes, two important tax events occurred on his watch that would have importance in the years to come. One was the ‘shadow’ tax challenge to his policies that was growing in the US Congress, driven by a coalition of right wing Republicans. This challenge became known as the Kemp-Roth bill. The other important event with historic import was the State and Local level tax revolt in California embodied in that state’s ‘Proposition 13’ Initiative. Prop 13 targeted the roll back of property taxes and provided an example for countless ‘me too’ efforts that followed thereafter elsewhere in the country.

The 1977 Kemp-Roth bill proposed a radical reduction in the top rate of the federal income tax, from the 70% level it had been at since 1964 to a new sharply lowered rate of 50%. It also proposed a three year 30% overall reduction in the federal income tax plus indexing of the tax brackets for inflation to deal with ‘bracket creep’. Kemp-Roth didn’t pass that year but it did become the tax policy centerpiece for Reagan’s 1980 Presidential election campaign. It later became the core idea for Reagan’s even more dramatic tax cuts for the rich in his first term.

While Kemp-Roth (and Reagan’s subsequent 1981-82 tax cuts) claimed to cut taxes for the middle class, in reality “Kemp-Roth was always a Trojan horse to bring down the top rate”, as Reagan’s Director of the Budget and his central tax architect, David Stockman, would later admit in 1986 once all the damage had been done. 18 In an act of ideological contrition, Stockman would later describe in his memoir of the period that the Reagan tax cuts of 1981 were simply driven by outright corporate greed. As he put it himself in an exclusive interview, “The hogs were really feeding. The greed level, the level of opportunism, just got out of control”. 19

The main target of Kemp-Roth was bracket creep. By the late 1970s rising inflation was beginning to significantly increase the federal income tax’s impact on a growing number of workers, particularly those in the 60%-80% income percentile range. Having begun to flex its new political muscle circa 1978, the nascent Republican radical right sensed the power of the bracket creep-inflation issue even if Carter and the Democrats did not. The origin of what would later be called the ‘Reagan Democrats’—i.e. working class voters who turned to Reagan in 1980—had much to do with this bracket creep issue and the increasing tax bite from the federal income and payroll tax hikes under Carter.

The second warning event was the Prop 13 revolt in California in 1978, which also had its origins in inflation and a kind of bracket creep but this time bracket creep associated with rising property taxes. Rapid increases in property values due to inflation pushed local property taxes to intolerable levels by the late 1970s for many mid and upper income level workers. Corporate and right wing forces grabbed the political initiative here once again.

The major beneficiaries of Proposition 13 in the long run, however, were business property owners and not working class homeowners. Prop 13 was written such that if a homeowner sold his property the property tax cap would lapse for the new owner who bought it and for the original owner buying another home in California. Given home sales turnover in California, this meant over time home property owners as a group would lose the benefit of Prop 13. In contrast, property values for business property, which seldom turned over, would remain over the long run. Even worse, business property owners could ‘buy and sell’ rights to each other if they did turn over property. A feature not extended to the individual homeowner. Efforts to reform or amend this inequity for the past 25 years have failed to pass the legislature or have been defeated by massive lobbying campaigns by business interests targeting the state legislature or financed by business through the Initiative process.

Proposition 13 was significant in yet another way. It meant California’s pre-1978 state budget surplus of $6.8 billion would quickly turn into chronic long term deficits, which in fact happened, requiring significant cuts in education and social services and equally significant increases in regressive sales taxes to make up for the revenue losses that resulted from Prop 13.

California was thus a kind of dress rehearsal for subsequent income tax cuts to follow under Reagan. The similarities were notable in terms of who benefited, in the massive reductions in social services that followed the tax cuts, and in the growing reliance on regressive tax hikes to make up for the losses in revenue from lower income taxes enjoyed by the wealthy and corporations. Parallels exist here too with today, decades later. With taxes on capital incomes having been significantly reduced during George W. Bush’s first term, the talk has turned increasingly in his second term to how to impose some kind of regressive national sales tax to make up for the income losses and the budget deficits that have resulted from the big tax cuts during Bush’s first term.

In summary, the central dynamic of the last half of the 1970s was that inflation and bracket creep—whether impacting income taxes at the federal level or property taxes at the state and local levels—provided critical political ammunition for the emerging radical right and its corporate allies. They grabbed the issue while Carter, the Democrats, and Labor’s lobbyists sat idly by. They then creatively turned the real concern with inflation and bracket creep into proposals for tax cuts for the rich and corporations.

In the early 1950s the median income American family was paying barely 5% of its earnings for federal income taxes, and only 1%-2% of its earnings at most for the payroll tax. Even by the early 1960s the annual tax burden of $700 for a median income family earning $6,000 a year was nearly double, at 11.6%, but not yet especially burdensome. 20

But by Carter’s last year in office, 1980, the median
income working family in America was paying a total
federal tax burden (income and payroll tax) equal to
24% of that family’s income.

The corporate elite and its new radical right allies in 1978 jumped on the new tax discontent and opportunity. Their candidate, Ronald Reagan, made it the centerpiece of his 1980 election campaign, as well as his primary policy objective when first entering office in 1981. In contrast, Carter and the Democrats in 1977-78 chose to ignore the significant political dangers (and corresponding opportunities) posed by the inflation-induced tax burden shift to the working class. The consequences of those strategic choices, for the Democratic party and for workers alike, still reverberate today.

The Reagan Tax Revolution

The Reagan Tax Revolution was a double-edged sword: One edge reserved for capital incomes, subsidies and shelters, and still another for payroll taxes. One edge cut taxes for the wealthy; the other cut take home pay for workers. On the one hand a shift occurred within the federal income tax structure under Reagan with capital incomes benefiting at the expense of wages and salary income; on the other a second shift also occurred between taxes on capital incomes (i.e. the personal income tax, corporate income tax, capital gains tax, estate & gift tax, etc.) and the payroll tax levied on workers wages and salaries.

Reagan’s Record 1981 Tax Cuts

The Reagan 1981 Tax Act reduced taxes by $752 billion and provided the single largest tax cut to date. The majority of that $752 billion was targeted for high income groups and corporations. The 1981 cuts dwarfed all the preceding tax cuts in quantitative terms but nevertheless borrowed heavily in terms of ideas from the Kennedy Tax Cut of 1964, the Nixon cuts in 1971, and the Kemp-Roth proposals of 1978.

From Kennedy and Johnson, Reagan took the idea of reducing the top income tax rates by lowering top rates from 70% to 50%. Taking a page from Nixon, the Reagan cuts increased the Investment Tax Credit, raising it once again back to 10% and then adding even faster business depreciation as well. From Kemp-Roth, it carried over the idea of an additional 25% reduction in total personal income tax rates phased in over two years. From Kemp-Roth it also borrowed the idea of indexing income taxes to offset bracket creep. But there was more. Much more.

A host of additional measures reduced the tax burden on the richest 5% even further. The capital gains top tax rate was reduced from 49% to 20%. The first 60% of long term capital gains were also made tax free. Estate and Gift taxes were cut. All limits on gifts to spouses were eliminated and ceilings tripled for other recipients of gifts. Estate taxes were eliminated for spouses, and otherwise ended altogether for 99.7% of all families. The remaining 0.3% still subject to Estate taxes had their rates reduced from 70% to 50%. Totally new items like the IRA and the ‘All Savers Certificates’ were also introduced, targeted in particular for taxpaying households in the 60%-95% income range.

In terms of corporate taxation, several generous new loopholes were introduced in 1981. Depreciation of equipment was compressed to just three categories of goods, with autos fully depreciable after only 3 years, business equipment after five, and buildings after fifteen. For small business, some equipment was fully depreciable in the first year. The top tax rate for small business was also reduced from 25% to 15%.

Oil facilities and railroad cars were also added to the Investment Tax Credit in 1981. Also for the first time, a corporation that didn’t use the Investment Tax 10% Credit could sell that credit to another corporation (which would now have a 20% credit). Credits could be bought and sold between corporations to avoid paying any tax altogether. This was called ‘Safe Harbor Leasing’. 21 The General Electric Corporation used ‘Safe Harbor Leasing’ not only to eliminate all tax liabilities in 1981 but to “pick up $110 million in refunds for previous years”. 22 According to one reputable source,

The sum of corporate-claimed depreciation for
1982-1987 was an extraordinary $1.65 trillion.23

Borrowing a page from Kennedy-Johnson and Nixon, the Reagan tax cut was wrapped in a public relations package promising 13 million more jobs by 1986. 24 However, what followed in 1982-84 was not more but fewer jobs, a recession even worse than that of 1974-75, and the highest unemployment rate since the Great Depression of the 1930s. In the two years immediately following the 1981 tax cuts unemployment shot up more than 10%. It was not until nearly three years later than unemployment started to come down, and then only to the 7%-8% range for much of the mid-decade—an unusually sluggish ‘jobless recovery’ by historical comparison to earlier recessions. Reagan’s recession following his 1981 tax cuts was thus a first in yet another important way: it marked the beginning of jobless recoveries that would become progressively worse in 1990-93 and 2001-04.

Apart from this failure to produce promised jobs, the nearly $600 billion in personal income tax cuts contained in the 1981 Tax Act did not mean significant tax reduction for the middle and lower income taxpayers. With median family income in 1980 around $25,000 a year, there was virtually no net tax reduction for those with annual incomes of $50,000 or less. Most of the cut in income taxes went to the top 5% of taxpayers, the lion’s share of which went to those with incomes of $100,000 and more. 25

The following Table 2.1 gives a representation of who benefited from the Reagan Tax Act of 1981:


Distribution Effects of Reagan 1981 Tax Cuts 26

Income Percent of All Taxpayers Net Change in Percent of Tax
($0000) (in 1981) Tax Liability Liability Changes

< $10K/Year 33.3% $125 27.7%
$10K-$15K 14.9 83 4.7
$15K-$20K 12.2 18 0.6
$20K-$30K 19.1 -26 -0.6
$30K-$50K 15.4 -84 -1.1
$50K-$100K 4.1 -756 -4.9
$100K-$200K 0.7 -4408 -11.4
>$200K 0.2 -19427 -15.1
(Source: R. Lekachman, Greed Is Not Enough, p. 66)

If $84 a year was the most a worker at the median income level got from the 1981 Reagan tax cuts, that paltry amount was soon more than offset by payroll tax increases beginning in 1984.

The Payroll Tax Revolution of 1983-84

In 1983-84 a major change in the payroll tax for Social Security and Medicare was enacted. This change would have momentous impact not only over the remainder of the decade of the 1980s but through the 1990s and up to the present. A special commission chaired by Alan Greenspan, later appointed his chief of the Federal Reserve system by Reagan, recommended a payroll tax hike to ‘save’ the Social Security System in 1983 and make it financially sound until the second half of the 21st century. Or so it was promised. A rise in the payroll tax would save Social Security for another century, Greenspan argued, avoiding the need for any additional ‘reform’ for another fifty years at least. Congress followed Greenspan’s recommendations and passed legislation and started raising the payroll tax effective 1984. Both payroll tax rates and the amount of annual income on which they were collected rose steadily thereafter. Two decades later, under George W. Bush the payroll tax would amount to a bigger deduction from many workers’ paychecks than the income tax.

One might logically argue that the payroll tax hikes were really deferred income that workers would collect after retirement. But not so. The surplus generated from the payroll tax hike over the next 20 years, 1984-2004, amounted to more than $1.6 trillion dollars. 27 But all of that $1.6 trillion would be spent by Congress during the 20 years to help cover the U.S. general budget deficit (caused to a significant degree, ironically, by the same huge tax cut of 1981-83 for the rich and corporations).

The following Table 2.2 illustrates the increases in the payroll tax rate and its taxable income base during the Reagan years, and includes the maximum payroll tax payment required by workers for the given rate and base.


The Social Security Payroll Tax Increase, 1980-1989

Year Tax Rate Tax Base Maximum Payment

1980 5.80% $25,900 $1,502
1981 6.65 29,700 1,975
1982 6.70 32,400 2,170
1983 6.70 35,700 2,391
1984 7.00 37,800 2,646
1985 7.05 39,000 2,749
1986 7.15 42,000 3,003
1987 7.15 43,800 3,131
1988 7.51 45,000 3,379
1989 7.51 48,000 3,604
(Source: Social Security Administration)

The record rise in the payroll tax after 1983—combined with the equally record cut in income and other taxes for the rich—meant that forces shifting the share of total federal taxes from the wealthy to workers occurred from two directions during the Reagan years.

The combined federal tax rate (income and payroll tax) for a median income worker in the early 1950s was only 6%-7%. By the mid-1960s, 11%. Under Carter 24%.

By the mid-1980s the total federal tax burden for
the same median income family had risen to 28%.
For taxpayers with annual incomes over $500,000
the total burden had fallen to 28%. 28

In addition to the combined federal tax rate, it is estimated the middle income family’s burden for state and local taxes in 1985 amounted to another 9.1% of the family’s income. 29 For federal and state together that’s a total tax burden of almost 40% of income for a median or average working class family.

Tax Reform Act of 1986

The third major tax event closing out the Reagan tax revolution of the 1980s was the so-called Tax ‘Reform’ Act of 1986. But reform in this case was certainly a misnomer.

The 1986 Act reduced the top income tax bracket further, from 50% to 28%, and included more than 650 special provisions—i.e. loopholes and shelters. Another remarkable feature of the 1986 Act is that it created what was called at the time the ‘bubble’. This meant that the very wealthiest households had their top income tax rate reduced to the 28% rate, but the income group just below them, households in the $70,000 to $170,000 range, actually were left with a higher top rate of 33%. The ‘Alternate Minimum Tax’ (AMT) designed to make sure even the richest paid some kind of tax despite all their loopholes and shelters was also changed to soften its impact on wealthier taxpayers. In addition, the corporate income tax top rate was further reduced from 46% to 34% and there were other reductions in taxes on capital incomes in the 1986 Act.

By 1986 a median working class family earning in the $30,000-$40,000 annual income range received a total annual income tax cut of $467 while a millionaire received a cut of $281,033. 30 But much of that $467 cut in taxes was largely offset by rising payroll taxes. What little the American worker got in the way of income tax cuts in Reagan’s first term was taken away by payroll tax hikes and other tax increases in Reagan’s second term.

Republicans and Democrats, Liberals and Conservatives alike, hailed the passage of the 1986 Act as legislation that would make tax “unfairness a thing of the past” and permit “the American people to move once again to trust their federal government”. 31 The Democratic National Convention refused to actively take up the question of raising top tax rates or closing loopholes for the rich in the 1988 election year. And its Presidential candidate, Michael Dukakis, said virtually nothing about the issue during the election campaign of that year.

Perhaps the best summary of the effects of the Reagan tax cuts by mid-decade was expressed by Nobel Prize winning economist, James Tobin, who wrote that the Reagan program would neither stimulate productivity nor revive jobs. “What it is sure to do is redistribute wealth, power and opportunity to the wealthy and powerful and their heirs. That is the legacy of Reaganomics.” 32

It was claimed that the Tax Reform Act of 1986 redressed some of the worse excesses of the preceding Reagan tax cut legislation. But that view conveniently ignores the huge cuts in the top marginal income tax rate for the wealthy and the ever growing tax bite on workers from the rising payroll tax. The view also ignores the proliferating tax shelters and other avoidance schemes at the time. The 1986 Act was a good example of the ‘tax reform shell game’ mentioned earlier, in which periodically top tax rates were raised (or lowered) while tax shelters, loopholes, and legalized tax avoidance schemes were eliminated (or restored) so that, in the end, the top 5% households and corporations continued to have their net taxes reduced from one source or the other.

To cite just a few examples of the loopholes and shelters introduced or expanded in Reagan’s second term and the 1986 Tax Act:

Among the more notable was the interest on loans deduction for corporations. With the boom in corporate borrowing in the 1980s, this loophole resulted in more than $100 billion a year loss to the US Treasury. Then there was the Net Operating Loss (NOL) deduction, which allowed corporations to reduce current year taxes and carry forward what was not used in the current year as tax deductions to future years. That loophole also cost at least $100 billion. Write offs for intangible property, for incorporation of shipping companies offshore, and hundreds of similar special interest tax breaks for individual companies and entire industries resulted in a cut in corporate Capital income tax revenues which more than offset any temporary increases in other taxes in 1986 affecting corporations and personal income taxes of the top 5% households.

George Bush Senior Targets the Middle Class

Under George H.W. Bush and Clinton the shift in taxes continued but at a slower pace.
The Reagan tax and defense spending policies of the 1980s had produced huge, record U.S. budget deficits. A second critical legacy of Reagan was the Savings & Loan scandal and the widespread bankruptcies of S&Ls throughout the country. The federal government had the burden of cleaning up that debacle, at a cost to the taxpayer of $500 billion to $1 trillion, depending on the estimates. 33 The onset of another recession in 1990-92 still further exacerbated the deficit problem. Bush senior’s administration was left to task of trying to cope with the growing deficit crisis. It turned to raising taxes.

But the focus and target of George Bush senior’s tax increases was not on the wealthy 1%. It was on those in 60% to 90% incomes ranges—families earning annually between $58,000 and $150,000 at the time. Their effective top income tax rate was raised to 33% to 37%, actually higher than the top rate for the wealthiest 1%. They would now also have to pay an additional 1.45% for the Medicare tax, which previously had a ceiling of $53,400 but now was raised to a $125,000 income base. Bush senior clearly avoided taxing his super-wealthy friends and instead went after professionals, mid-level managers, self-employed small business, and upper income level workers.

On the other hand, while tax rates were raised for some, between 1990 and 1993 tax loopholes and tax shelters were added back in by the dozens as amendments to various bills in Congress.

Bill Clinton’s ‘Republican Lite’ Tax Policy

For the Clinton period, 1992-2000, three further notable tax events took place.

The first was the diversion of the huge surpluses then beginning to appear in the Social Security fund as a result of the major hike in Social Security payroll taxes in 1983-84. Throughout the 1990s under both Bush senior and Clinton, payroll tax rates and the taxable income base were permitted to rise further. Larger and larger surpluses began to occur in the Social Security Trust Fund. During the 1992 election campaign both parties, Democrat and Republican, promised that the Social Security surplus would be reserved in a ‘lock box’ and not opened or diverted to other federal uses—such as covering the chronic and growing yearly U.S. general budget deficits.

But the ‘lock box’ was broken into every year during Clinton’s eight year term in office and the more than $1 trillion surplus it generated by 2000 was diverted to offset federal budget deficits.

The second notable tax event under Clinton was his decision in 1993 to provide some modest tax cuts in order to stimulate recovery from the Bush recession and the slow jobless recovery. When Clinton took office in 1993, modest tax rebates were given to workers with this intention. However, as rebates they were one time events and never structured in as permanent cuts and changes to the tax system—in contrast to that done for tax cuts for the wealthy under Reagan. At the same time taxes were increased for upper income levels of workers, professionals, and those in the 60%-90% income ranges. They were not raised, on the other hand, for those in the wealthiest 5%-10% category.

The third tax event occurred in Clinton’s second term. In 1997 yet a third benchmark tax bill called the Taxpayer Relief Act of 1997 was passed. This amounted to yet another, and in this case the largest, personal income tax cut for the rich and wealthy during the decade. It focused primarily on changing the capital gains tax.

The main features of the 1997 Clinton Act were a reduction in the top rate for capital gains from 28% to 20%, with a further reduction after 2001 (to 18%) for long term gains. The Estate tax minimum level was raised from $600,000 to $1 million, plus small business was provided with an Estate tax exemption for the first $1.3 million value of a business passed on to heirs. Gift taxes were also allowed to rise and the Alternative Minimum Tax for small businesses was also repealed. There were also other tax rules included in the 1977 legislation that were decidedly favorable to business. For example, the Corporate Alternate Minimum Tax, which would have raised taxes paid by corporations as their profits grew in the 1990s, was changed in 1993 and again in 1997 in order to prevent its impact on businesses. 34 Capping off the 1997 Act the following year was an addendum tax bill called the IRS Restructuring and Reform Act of 1998. It made it highly difficult for the IRS to challenge and collect back taxes in cases where the estate and gift tax provisions of the 1997 Act were involved.

To get these reductions through Congress various provisions were added to the 1997 Act that provided some benefit for working class taxpayers. The child tax credit was raised modestly and tuition tax credits were introduced, along with modest changes in IRAs. Individual company and industry tax breaks and shelters were also part of the legislation. In all, more than 800 changes to the tax code were included in the 1997 Act, a large number of them special interest company and industry changes.

George W. Bush’s tax cuts would look very much like the Clinton cuts in some ways. Minor concessions to working families in the form of credits and modest one time rebates, which collectively made up less than a third of the total tax cut, were similarly offered by Bush in his tax bills. But the overwhelming weight of the cuts went to the wealthiest taxpayers and to corporations. Bush’s 2004 corporate tax cuts also followed the Clinton trend set in 1977 by providing hundreds of pages (literally 600) containing specific tax cuts for individual companies and industries.

As with Bush, tax cuts for business and the wealthy were at the heart of the 1997 Clinton tax proposals. It was estimated the 1997 Act reduced taxes by an amount of $100 for every upper income household compared to only $5 for median income households.

With the passage of the 1997 Tax Act the wealthiest 1%-5%, who owned most of the publicly traded stock in the country, were now well poised to reap the benefits of the boom of 1996-2000. Clinton’s focusing in 1977 primarily on capital gains was not a mere coincidence. From 1996 on the stock markets began their record march upward, driven by the new technology industries where compensation to CEOs, executives, and top shareholders came not in the form of salaries but in stock options and shares. It would soon be time to ‘cash in’ on the speculative gains in stock prices. In addition, the latter half of the 1990s was a period of major real estate profits. The significantly reduced 1977 capital gains tax would allow realization of record gains from real estate as well.

Those within the Clinton administration maintained at the time that the impetus for the 1997 capital gains cuts was the desire to increase federal revenues. In the short run, they argued, a capital gains cut meant stockholders would ‘cash in’ and thus pay more taxes. This was true—but only over the very short run. And at the expense of eventually less revenues later in the longer run, which is what in fact occurred after 2000. In a way, Clinton tax policy in the area of capital gains contributed in a delayed fashion to the sharp fall in U.S. government revenues that would later occur under George W. Bush.

The true total estimate of the cost of collective tax cuts during the 1990s is even higher than official estimates. Not just the reductions in top rates for capital gains, estate and other income taxes on the wealthy were involved, but countless new tax loopholes and new tax shelters were passed during the decade as well. Due to the shelters and loopholes,

The number of individuals who filed income taxes
but did not pay a penny increased from 24 million
in 1990 to 29 million in 1997. This trend was the
opposite of the years 1950 to 1970 when those who
filed but paid no taxes declined by 3 million. 35

As Joseph Stiglitz, Nobel economist and head of Clinton’s Council of Economic Advisers in the 1990s, would admit much later that Clinton “raised taxes on upper-middle-income individuals who worked for a living, but he had lowered taxes on very rich individuals who made their money from speculation, and on CEO’s who were making millions from stock options…It was a pure gift to the rich”. 36

In a number of other ways Clinton’s 1997 Tax Relief Act was also a forerunner of Bush’s 2001 tax cut legislation. In particular, the Clinton Act introduced the idea of a major restructuring of Estate and Gift Taxes even before George W. Bush, producing huge tax savings for the richest 1% taxpayers. ‘Selling’ the Tax Act with sweeteners for the general public in the form of tuition credits and token IRA improvements was also a Clinton ‘first’, adopted later by George W. Bush. It might even be argued that Bush’s subsequent 2001 tax cut proposals were Clinton’s 1997 Tax Cuts simply “writ large”.

By the end of Clinton’s second term tax avoidance, both individual and corporate, as a result of spreading shelters and loopholes had become a scandal. According to IRS data

In 2000, 63% of all companies in the U.S. reported
they paid no corporate income tax from 1996
through 2000 on revenues totaling $2.5 trillion.

And the effective tax rate for the 37% of companies that did pay some taxes in 2002 was only 12%, compared to 18% as recently as 1995. Clinton’s 1997 tax bill and the many gifts it provided to the wealthy and to corporations had much to do with this dramatic tax avoidance trend.

George W. Bush 2001-2004: The Tax Revolution in High Gear

In each of the four years of George W. Bush’s first term major tax cut legislation was passed that overwhelmingly benefited the richest households, corporations, and capital incomes in general. The total dollar value of Bush’s first three tax cuts enacted between 2001-03 was initially estimated at more than $3.3 trillion. However, that $3.3 billion does not include the costs of interest payments due to the budget deficits created by the tax cuts. When interest on the deficit caused by the cuts and other indirect costs are included, the full cost of the Bush tax cuts rises to $4.5 trillion. 37

The Bush Plan Year One (2001): Slash Taxes on Personal Capital Incomes

Like Reagan before him, tax cuts were Bush’s first policy priority if elected. There were many other issues and programs discussed in the course of the 2000 elections campaign, but tax cuts were at the top. Once in office, major tax legislation was proposed by Bush within days of his inauguration in January 2001.

Bush’s first tax bill was called the Economic Growth and Tax Relief & Reconciliation Act of 2001, or EGTRRA for short. But as in the case of Reagan’s tax cuts in 1981-82 and promises of job creation twenty years earlier, the recession continued to deepen following the passage of Bush’s first tax cut in June 2001. Three years later jobs were still millions short of January 2001 levels when Bush first took office. 38

Both conservative and liberal think tanks alike estimate the lost revenue due to the 2001 tax cuts at approximately $1.35 trillion. 39 The $1.35 trillion does not include, moreover, interest costs of $383 billion due to increased debt service payments.

The total revenue loss and costs associated with the
Bush 2001 tax cut alone amount to more than $1.7
trillion through 2011, and $2.2 trillion if the cuts
were made permanent after that. “The funds that
finance the tax cut would be more than sufficient to
completely resolve the Social Security financing
problem through 2075”. 40

$875 billion of this $1.35 trillion was the result of cuts in personal income tax rates, especially for those taxpayers in the four top rates of 39.6% to 28%. These rates were reduced 1% each year for the next three. According even to the conservative think tank, The Heritage Foundation, this reduction in the top tax rates would affect at most only 4.7% of the 131 million taxpaying households at the time in 2001. 41 In contrast, more than 72% of tax households (95 million taxpayers) received no tax cut benefit at all from the rate reduction feature of the 2001 Bush Act. The 95 million taxpayers include not only virtually all working class taxpayers, but 70% of all small businesses and the self employed as well. 42

A second major tax cut element favoring capital incomes in the 2001 Act was a $138 billion further reduction in the Estate Tax. Once called the ‘Inheritance Tax’, then ‘Estate Tax’, and since 2001 the Bush spin has been to refer to is as the ‘Death Tax’. But of the roughly 2.5 million taxpaying heads of households who die each year in the U.S., barely 2400 families, or less than 0.1% of all families, were subject to the Estate tax prior to 2001. That’s before Bush’s further reduction in the Estate Tax. With 99.9 of families exempt today after the Bush cuts, it is nonetheless still called the ‘Death’ tax by radical tax cutters in Congress.

The trend toward eliminating the Estate Tax was begun in 1997 under Clinton. Bush merely took up where Clinton left off and accelerated the process of phasing out the Estate tax. Whereas Clinton raised the exclusion for the Estate Tax from $600,000 to $1 million and exempted small businesses with estates less than $1.3 million, Bush simply went one step further. He raised the exclusion to $3.5 million ($7 million per couple) and lowered rates on estate values above $7 million from 55% to 45%. What Clinton therefore began in terms of reducing Estate and Gift taxation, Bush finished by virtually eliminating Estate and Gift taxes altogether, providing another $138 billion windfall for the wealthiest 1% of taxpaying households.

To ensure the 2001 tax handout was supported by the public the 2001 tax act provided for a token $100 increase in the childcare credit, minor adjustments to education tax credits and a temporary reduction in the marriage penalty. Altogether these three elements amounted to around $265 billion over the decade, or about one-fourth of the total tax cut. This compares to the $1.013 trillion for income tax rate reduction, the estate and gift tax cuts which the top income group benefited from almost exclusively. The remainder of the $1.35 trillion in the 2001 Tax cuts were for minor changes in IRAs, adjustments to the alternative minimum tax, and other measures.

Nearly all sources admit the 2001 tax cut was skewed strongly toward the wealthiest taxpayers. The top 5% richest households—those with annual incomes on average of more than $373,000—received 47% of the total $1.35 trillion cut. The next richest 15% households received an additional 24% of the $1.35 trillion. That’s a total of approximately 6 million out of 132 million households. The remaining 126 million taxpaying households—the lower 80% of which are predominantly working class and earn less than $76,000 in annual incomes on average—were left to share the remaining 29% of the 2001 tax cuts. And much of that 29% would be absorbed by rising payroll taxes and major increases in state and local income, sales and residential property taxes.

The wealthiest taxpayers earning more than $147,000
a year in annual income will receive 71% of the total
2001 Bush tax cut, or nearly $1 trillion. 43

As a well-known tax economist summed up, “by a variety of reasonable measures, the (2001) tax cut is disproportionately tilted toward high income households”. 44

The following Table 2.3 summarizes the skewed distributional character favoring the wealthiest taxpayers in Bush’s first 2001 tax cut, the EG&TRRA.


Distributional Effects of Bush 2001 Tax Cuts 45

Income Group Income Range Ave. Value of 2001 Share of
Percentile Ending At Tax Change Tax Cut

Top 1% — -$45,715 36.7%
Next 4% $373,000 -$3,326 10.7%
Next 15% $147,000 -$1,978 23.8%
Fourth 20% $72,000 -$951 15.3%
Third 20% $44,000 -$570 9.2%
Second 20% $27,000 -$368 5.9%
First 20% $15,000 -$67 1.1%

Source: William Gale and Samara Potter, “An Economic Evaluation of the Economic
Growth & Tax Relief Reconciliation Act of 2001, National Tax Journal, March 2002,
Tables 4 and 5.

The Bush Plan Year Two (2002): Expand Corporate Tax Subsidies

One of the largest areas of tax subsidy in the U.S. tax code involves what’s called corporate depreciation write-offs. The 2001 Tax Cuts focused primarily on capital incomes associated with the personal income tax, but it was quickly followed the next year with the Job Creation and Worker Assistance Act of 2002.

As in the case of its 2001 predecessor, the 2002 tax cuts created jobs in name only. Job losses accelerated in 2002 compared to 2001, even though the recession of 2001 officially ended by November 2001. 2002 may have been a recovery for those earning capital incomes, but not for workers who earn virtually all their income from wages and salaries and for whom jobs were continuing to disappear at a faster rate in 2002 and 2003 than in 2001 during the ‘official’ recession.

The jobless economic recovery phenomenon that began under Reagan and was repeated under Bush senior was once again underway by 2002. This time, under George W. Bush, it was an even slower jobs recovery than occurred during the two prior recessions. Jobless recoveries were becoming progressively more drawn out, with Bush’s 2001-03 the worst of the three recessions since 1980. Despite the jobless recovery in progress, Bush linked tax cuts with jobs once again in 2002. It was not the first time such a false claim had been made since 1980; nor would it be the last.

The 2002 Tax Act provided a new bonus depreciation deduction equal to 30% of the cost of new equipment. Now businesses could take the regular depreciation write off, plus 30% more. But even this was not all. In addition to the regular and the 30% bonus, there was an additional ‘Section 179’ expense deduction which permitted the full write off in the first year of the first $24,000-$59,000 of equipment costs. In other words, three layers of depreciation were now available to companies as a consequence of the 2002 Tax Act. Businesses in general and corporations in particular could now immediately write off—that is deduct the cost from their taxes owed—of up to two-thirds or more of the cost of equipment in the very first year. That compared with depreciation rules prior to 2002 that permitted writing off equipment over 15 years, not one year, with only one simple depreciation opportunity. Another huge change in 2002 allowed full depreciation on commercial buildings within five years instead of what was previously 39 years. 46

The 2002 Act also increased the amount of depreciation claimable on luxury SUVs by $4,600 in the first year. How this particular provision related to job creation is, of course, even more questionable.

Still another major element of the 2002 act benefiting corporations was a significant change in “Net Operating Loss’ rules. A loophole originally expanded under Reagan in the 1980s, NOL allows a company to re-file taxes and get refunds if its losses in a current year exceeded its tax claims in that same year. NOL means a company can ‘go back’, re-file tax returns for past years, and claim further refunds for those past years based on current year losses. It’s like allowing a worker who is unemployed in a current year to re-file his back taxes and get refunds on taxes paid in the past equal to the drop in his normal income in the current year due to unemployment. Of course, that’s not allowed for workers. But it is for corporations and businesses. This provision constitutes a ‘tax subsidy’ pure and simple.

In the 2002 Act the NOL provision was expanded, increasing from two to five the years over which a company could carry its losses backward to get refunds for previous taxes paid. The NOL carry back provision of the 2002 Act resulted in many corporations avoiding having to pay any taxes at all, despite attaining significant profits growth in that year.

Theoretically, depreciation tax cuts are supposed to generate investment in replacement plant and equipment faster than otherwise would be the case. In practice, depreciation is seldom linked to actual job creation. But that doesn’t stop businesses from claiming the tax write off since proof of job creation is not required and, in fact, proof of investment by the IRS is not even demanded in many cases. The benefits of faster write-off of equipment go directly to the corporate bottom line. When depreciation does result in actual equipment replacement, the greater productivity that results often eliminates the need to hire and create new additional jobs. Thus depreciation often means the destruction of jobs, not the creation of net new employment.

The focus on depreciation in the 2002 tax cuts was part of a long tradition of expanding depreciation write-offs since the 1960s and the Kennedy tax cuts. Every major tax cut over the past three decades has expanded the depreciation loophole for corporations. The result has been huge tax reductions for corporations and business in general and greater corporate net income as a result.

The Bush Plan Year Three (2003): Dividends, Capital Gains, & Accelerated Write Offs

Once more with the political spin machine in gear, Bush named the 2003 tax cut the Jobs and Growth Tax Relief and Reconciliation Act of 2003. But no sooner was the bill signed in June 2003 that the much heralded jobs recovery, predicted by Bush to create 300,000 jobs a month, began to stall. The Bush jobs recovery once again aborted in the second half of 2003 for a second time in three years.

The third year of the Bush Tax offensive revisited the 2001 and 2002 tax cuts and went even further in expanding tax cuts for the rich and for corporations by combining even more generous personal income tax reductions and corporate depreciation write-offs.

At the heart of the 2003 Bush tax cut were even more radical reductions in dividend and capital gains taxes, nearly all of which accrued to those with the highest incomes, plus a speeding up of the 2001 reduction in top individual income tax rates for the wealthy. On the corporate side, depreciation write offs and other tax subsidies were also accelerated.

Reductions in the top income tax rates scheduled for 2003 were now also made retroactive to 2001. The tax rate on dividend income, previously at 39.5%, was dramatically reduced to a maximum 15% rate. And the Capital Gains top rate was lowered further from 20% to 15% as well. When combined with the cuts in the estate tax, these measures reduced taxes on capital incomes and provided a record windfall for the top 5% of taxpaying households. As recently as1990 the top rate for the capital gains tax was 28%, nearly twice that in effect today.

On the corporate side of the 2003 tax cuts, the ‘Section 179’ depreciation-deduction allowance for businesses was raised from $25,000 to $100,000. A business could now deduct off the top in the first year $100,000 in spending on equipment, including software. In addition, the 30% ‘bonus’ depreciation write-off passed in 2002 was also raised significantly in 2003, to 50%. After the first $100,000 in write-offs, half of all remaining expenditures on business equipment could now also be written off. And after these two special write-offs, normal depreciation could also be taken on whatever cost of equipment purchases remained. These further expanded write-offs were estimated alone at around $30 billion in savings every year for businesses. 47

For the remaining 100 million taxpayers unable to enjoy such tax largesse, the 2003 tax cuts slightly improved the child credit, marriage penalty, and 10% bracket eligibility—but only temporarily. In contrast to the 2003 tax cuts’ huge reductions for dividends and capital gains, the provisions for child care, marriage penalty, and similar consumer elements of Bush’s 2003 proposals were made temporary for only two years in order to make the total cost of the 2003 tax legislation appear lower (and thereby no doubt to help sell the package to holdouts in Congress and to the public).

The child credit was raised from $600 to $1000 for 2003-04 but was set to revert back to $700 levels thereafter. The marriage penalty was improved, but also for 2003-05 only,
reverting back to previous levels in 2005. Similarly, the low income bracket was improved but only for two years. In contrast, tax cuts involving dividends, capital gains, top tax rates for the rich, and corporate write-offs and tax subsidies were etched in stone for the life of the tax act, until 2013.

The Bush tax cuts of 2002 and 2003 will result in a
reduction in corporate taxes amounting to at least
$414 billion for the period 2002 through 2013. 48

The official estimate of the revenue loss due to the 2003 personal income tax cut provisions (Dividends, Estate Tax, Capital Gains Tax) in the 2003 Act was $350 billion. But if provisions are made permanent through 2013, which is highly likely given the composition of the 2005 Congress, the personal income tax reductions are estimated at $800 billion.

Distributional Effects of the 2001-03 Tax Cuts

In terms of income distribution the 2003 tax cuts were even more generous to capital incomes than were the 2001 and 2002 tax cuts combined.

According to the Institute on Taxation and Economic Policy’s Tax Model the cumulative three years of Bush tax cuts (2001-2003) mean the top 20% richest taxpayers get more than 70% of the combined tax cuts in 2004. The wealthiest 1% of taxpayers do even better than the top 20%. They get 30% of the total tax cuts in 2004 and their share of the cuts rises to 39% by 2010. 49 In contrast, the bottom 80% income groups—mostly workers with average annual incomes no higher than $76,400 a year—get only 14% of the three years’ of tax cuts by 2004. And their share of the cuts not only do not grow by 2010 but drop from 14% to 10%. 50

In 2005 it is projected that of the more than $100 billion of the tax cuts taking effect that year, 73% will go to the top 20% of tax payers. Those with incomes over $1 million a year in 2005 will receive a tax cut of $135,000 a year. All those with incomes less than $76,400 will get about $350 on average with millions receiving no tax cuts at all.

Stated another way, as skewed and biased the Bush tax cuts are, this skew and bias grows worse over time between 2003-2013. Tax cuts for corporations and the super rich are ‘back loaded’ in the Bush cuts. The worse is yet to come.

The following two tables show this highly skewed character of the Bush personal income tax cuts, 2001-2003. Table 2.4 illustrates the ‘Shares of the Tax Cuts by Income Groups’ for three select years. Table 2.5 shows the ‘Effect of the Tax Cuts on After-Tax Incomes’ of the different income groups.


Shares of Tax Cuts 2001-03 by Income Groups 51

Income Average Average Share Share Share
Income Group Range Income Tax Cut 2004 2007 2010

Lowest 20% <$16K $9,800 -$61 0.9% 0.9% 0.7%
Second 20% $16-$28K $21,400 -$327 4.6% 4.0% 3.6%
Middle 20% $28-$48K $35,300 -$586 8.7% 6.6% 5.9%
Fourth 20% $45-$73K $57,400 -$967 15.5% 11.9% 10.6%
Next 15% $73-$145K $97,500 -$1,538 25.4% 22.1% 19.2%
Next 4% $145-$337K $200,100 -$2,907 15.0% 18.9% 21.2%
Top 1% $337K or more $938,000 -$66,601 29.8% 35.5% 38.9%

Source: Institute on Taxation and Economic Policy Tax Model, June 2003

The above table 2.4 shows that while the richest 20% will get just over 70% of the tax cut share in 2004, their share will rise considerably by 2010 to nearly 80% of the total cuts. The data also illustrate that the approximately 71% share going to the wealthiest 71% in the 2001 tax cuts, noted previously above, continued in roughly the same distributional mix in the combined tax cuts from 2001 through 2003.


Percent Total After-Tax Income 52
(Before & After 2001-03 Tax Cuts)

Income Group Before After Percent Change

Lowest 20% 4.0% 3.9% -0.1%
Second 20% 7.8% 7.7% -0.1%
Middle 20% 12.1% 12.0% -0.1%
Fourth 20% 19.3% 19.2% -0.1%
Next 15% 24.3% 24.1% -0.2%
Next 4% 13.8% 13.6% -0.1%
Top 1% 18.8% 19.6% +0.8%

Source: Institute on Taxation and Economic Policy Tax Model, June 2003. Figures
do not include corporate taxes, payroll taxes or state and local income taxes.

Table 2.5 shows it is clear that only the richest 1% have a significant gain in after tax income due to the Bush tax cuts. That top 1% wealthiest taxpayers +0.8% gain is equivalent in dollar terms to $1.078 Trillion in tax cuts from 2001 to 2010 alone. 53 In other words, the wealthiest 1% gain at the relative expense of the other 99%.

The Brookings and Urban Institute’s Tax Policy Center estimates the annual transfer in income to the rich and super rich flowing from the Bush 2001-2003 tax cuts is $113 billion a year from 2003 through 2013. And this does not even include the Corporate Tax cuts of 2004.

The cost of the 2001-03 tax cuts is estimated at $3.4 trillion for the first decade, while the total impact of the Bush 2001-2003 tax cuts when made permanent through 2075 is $11.6 trillion—45% of which will go to the wealthiest 5% of taxpayers and 70% to the wealthiest 20%. Once again, these numbers reflecting after-tax income redistribution do not include the corporate tax cut provisions in the 2004 tax act passed in late fall 2004. Nor do they address the income redistribution occurring before taxation even begins. As two highly respected economists in the field of tax policy, William Gale and Peter Orszag, have recently noted, “all the proposed tax changes are taking place against a backdrop of increasingly unequal pretax income that has continued largely unabated since the late 1970s.” 54

Shelters: Reducing Taxes Before the IRS Gets To See

Most assessments of the distributional effects of taxes and relative tax burdens do not consider the amount of taxable income that the wealthy and corporations ‘put aside’ (i.e. shield) as a result of tax subsidies and tax shelters. In recent decades more and more pre-tax income is shielded and never allowed to enter the tax system and tax determination process.

The cost of the Bush tax cuts above do not include the proliferation of countless tax shelters building up over the last two decades prior to 2004, and the new shelter provisions contained in the 2004 Act, all of which skim pre-tax income off the top before IRS tax rules and procedures even come into play. Like a mafia-run casino, a certain percentage of revenues, especially those earned offshore in subsidiary operations or foreign branches of a corporation, are put aside. They may even be run through the corporate calculating machine in a back-room in Bermuda, or some Caribbean bank. Whichever the case, they are not even considered in the process of determining a company’s taxation. Not even the US government has an accurate estimate of how much is shielded in pre-tax income, especially for corporate income generated or held offshore. A similar difficulty exists for estimating accurate corporate depreciation claims when companies ‘mix’ their U.S. and foreign business.

The scope and magnitude of the pre-tax skimming is indicated in that relatively small portion of foreign tax shelters for U.S. companies and wealthy individuals that get reported. 55

One of the biggest scandals of Bush’s first term was how big U.S. accounting companies advised and urged their corporate clients to deny their U.S. citizenship and relocate, on paper, to Bermuda. In other words to become a foreign company in order to shelter and avoid U.S. taxes. Yet the Bermuda connection represents only “a tip of a vast iceberg of corporate offshore tax sheltering—all designed to shift U.S. profits, on paper, outside the United States”. 56 Estimated at more than $50 billion a year in Bermuda-based tax losses to the U.S. Treasury in 2002, corporate tax sheltering extends well beyond Bermuda and has gone global.

In 1983 offshore tax havens sheltered $200 billion.
Today that total has grown to more than $5 trillion.

Of 370,000 corporations registered in Panama, only 340 bothered to file income tax reports in the US. And according to a study by the Federal Reserve Bank of New York, U.S. deposits in the Cayman Islands tax haven amount to more than $1 trillion and are growing by $120 billion a year.

Instead of working to reduce tax shelters, the Bush tax radicals in the U.S. House of Representatives have been doing all they can to expand them. In 2003 the Chairman of the Ways and Means Committee, Bill Thomas, for example, publicly declared he favored an expansion of offshore tax sheltering and proposed amendments that would promote $83 billion in additional offshore tax avoidance in the corporate income tax cut bill introduced at the end of that year. 57

Why Have Payroll Taxes Not Been Cut?

With all the broad cuts in taxes on personal incomes and the corporate income tax, it is perhaps at least curious why cuts in the payroll tax have been so assiduously avoided by Bush and his radical friends in Congress? The answer, however, is not so difficult. There are at least three major reasons why payroll taxes are not reduced.

First, payroll taxes have created trillion dollar surpluses in the Social Security Trust fund since 1984. Those surpluses are politically convenient for Bush, as they have been for all his predecessors since Reagan. That Trust Fund surplus amounts to $1.6 trillion since 1984 through 2004, not counting several trillions more in interest earned. That surplus has been ‘permanently borrowed’ by the U.S. government every year to help offset the chronic U.S. general budget deficits that have averaged hundreds of billions each year since 1981. Cutting payroll taxes would mean less to borrow and therefore even greater budget deficits each year than now occur.

Second, the continued growth of payroll tax revenues is necessary for Bush to implement his plan to privatize Social Security over the next decade. The Social Security Trust fund is expected to generate another $1.1 trillion surplus between now and 2018. Cutting payroll taxes would require Bush to propose even more borrowing from bond markets to finance his Private Investment Accounts for Social Security or cutting benefits for retirees to cover the transition costs for the privatization of Social Security. These issues are addressed in more detail in Chapter Ten on Social Security in this book. For the moment, it is sufficient to note that, in all likelihood, payroll taxes will be raised by some amount as part of a political settlement in Congress should Bush’s plan pass.

Third, payroll taxes include 12.4% for Social Security plus another 2.9% for Medicare funding. Within Medicare there are two plans, ‘Plan A’ which covers hospitalization expenses, and ‘Plan B’ which covers non-hospitalization medical costs. At present, funds are transferred every year in large amounts from Plan A where there is a surplus to Plan B where there is a major deficit. Growing payroll tax revenues allow this transfer to continue. It allows Congress not to have to address raising taxes to properly finance Plan B. If it did, there would be less available for income and corporate tax cuts. Were the 2.9% Medicare tax reduced, in other words, the transfer of funds from Plan A to Plan B would no longer be possible and tax increases would be necessary. Congressional tax radicals would face an untenable political situation of permitting tax cuts for their rich friends and corporations while they refused to provide funds for elderly Americans’ doctor visits. Allowing Medicare payroll tax revenues to rise conveniently allows with game to continue. Cutting the Medicare payroll tax rate would jeopardize it.

The Bush Plan Year Four (2004): Manufacturers & Multinationals Have Their Turn

Conservatives continually rail against ‘double taxation’ of the rich—aimed first at their companies and then at their incomes derived from those same companies. What the Bush record shows, however, is that the U.S. under Bush has been experiencing a new policy of ‘double reverse taxation’—record tax cuts for the rich as individuals as well as tax cuts for their companies.

The first four years of Bush’s administration witnessed an alternating shift in tax policy focus. Initially, Bush’s 2001 proposals targeted tax cuts for individuals. In 2002 the focus was primarily on small business and corporate tax cuts. In 2003 once again the tax cuts mostly reduced taxes for wealthy individuals by lowering capital gains, reducing dividends, phasing out estate taxes, and the like. In 2004 the focus shifted back yet again almost exclusively to further tax cuts for corporations—for large multinational corporations in particular.

The corporate tax top rate alone declined from 1988 to 2003 from 27% to 17%. But this was only part of the picture. Total corporate tax revenues were reduced by various other means as well.

A study done by the Institute on Tax and Economic Policy (ITEP) in September 2004, on the eve of the passage of the 2004 Corporate Tax Cut Act, showed the corporate tax provisions in Bush’s 2002 and 2003 tax cuts amounted to $75 billion for the period, 2002-04, for the largest 275 corporations in the survey. While pretax profits of these 275 corporations went up 26% between 2001-03, “over the same period corporate income tax payments to the federal government fell by 21%”. 58 And this was before the additional major corporate tax breaks in the 2004 tax cut bill were passed.

The ITEP study focused not only on top tax rates but also on tax subsidies—i.e. the tax rebates these 275 companies received from 2001 through 2003. In at least one of the three years 82 of the 275 corporations paid no taxes at all due to subsidies, and they received significant tax rebates even though these corporations were highly profitable. Some of the more astounding examples of tax rebates received by profitable companies from the U.S. treasury are noted in Table 2.6 below.


Corporate Tax Rebates 59
Company Profits Tax Rebates Received

General Electic $11.9 billion -$33 mil.
Pfizer $6.1 bil. -$168 mil.
Verizon $5.6 bil. -$685 mil.
AT&T $5.6 bil. -$1.39 billion
Wachovia Bank $4.1 bil. -$164 mil.
Metlife $2.9 bil. -$67 mil.
JP Morgan Chase $2.5 bil. -$1.38 billion
Lehman Brothers $1.8 bil. -$39 mil.
Bank of New York $1.7 bil. -$29 mil.
Boeing $1.0 bil. -$1.7 billion

Source: Robert McIntyre and T.D. Coo Nguyen, “Corporate Income
Taxes in the Bush Years”, Center for Tax Justice, September 2004.

Tax rebates, corporate tax subsidies, expansion of offshore tax havens and tax shelters, the foreign tax credit, accelerated depreciation and investment credits, and scores of other special interest tax loopholes by the end of 2003 all played an important part in the freefall in the corporate income tax’s contribution to total federal taxes.

The corporate income tax’s contribution to total U.S.
tax revenues has declined from more than 20% in
the 1960s to 11% in the 1980s under Reagan, and
now to barely 6% under George W. Bush. 60

With the share of corporate income taxes at 6% at the close of 2003, yet another corporate tax cut, the Corporate Tax Reduction bill of 2004, was introduced. It provided a further major business tax cuts that would be called “the largest business tax relief program in more than a decade”. 61

Having just passed the 2003 tax cuts targeting personal incomes, capital gains, dividends, and estates in June of that year, Bush publicly declared in August 2003 he would seek no
further tax cuts. But within days tax radicals in the House of Representatives immediately proposed an additional $128 billion in corporate tax cuts, which was named once again ‘The American Jobs Creation Act of 2004’. The 2004 proposals originated in the need to repeal of U.S. export subsidies that were declared illegal by the World Trade Organization. The illegal U.S. export subsidies resulted in counter-tariffs imposed by European and other nations on the U.S.. This dispute served as an excuse to open corporate tax cut floodgates once again, allegedly to compensate for the eventual repeal of the export subsidies to comply with the WTO. But that compensation would end up a very minor part of the total corporate tax cut bill.

No fewer than three separate corporate coalitions lobbied for their preferred versions of tax cuts, bidding up a Congress stumbling over itself trying to satisfy all corporate comers.

One corporate lobbying group, the ‘Coalition for Fair International Taxation’, led by General Electric, sought to increase the foreign profits tax exemption, which allows US corporations doing business abroad to subtract from their US taxes the amount they pay in foreign taxes. As it would turn out, GE would prove to be one the biggest beneficiaries of the tax bill when passed. 62 A second group, led by Boeing and Microsoft, called the ‘Coalition for U.S. Based Employment’, lobbied for a $60 billion permanent reduction in the corporate tax rate, from 35% to 32%, to make up for the repeal of the export subsidy. A third, led by Hewlett-Packard, pushed for the one year ‘tax holiday’ on an accumulated $500 billion in profits made abroad that corporations continued to hold offshore to avoid paying US taxes. By mid-year 2004 all three groups ended up with nearly everything they each sought in the combined tax cut legislation that came before the House and Senate for a vote.

The pork barrel got even larger as other special interests and lobbyists jumped on board over the summer. A parallel $31 billion tax cut for oil and energy companies, which failed to pass in November 2003 by only two votes in Congress, was resurrected as a $19 billion add on to the general corporate tax cut by mid-2004. More than $10 billion was added for the Tobacco companies, to compensate them for tobacco subsidies previously received from the U.S. government and taxpayers. Other special interest provisions were thrown in for the wine industry, aerospace, and the child tax credit extended to families with annual incomes up to $309,000 by right wing tax radicals in the House of Representatives. By summer 2004 the various corporate and special interest tax cuts proposed amounted to $155 to $170 billion, depending on the House or Senate versions.

Initially the Bush legislative strategy in the summer of 2004 was to hold ‘hostage’ those modest provisions (child care, marriage penalty, 10% bracket, etc.) of the 2001 and 2003 laws that would benefit working families. Bush insisted tax cut provisions for the rich and super rich would have to be made permanent for the next 10 years first. Otherwise, he declared, he would veto any bill.

But as the drums of the November 2004 elections grew louder, in July 2004 Republican leaders in Congress attempted to cut a deal with moderates permitting a two-year extension of the modest provisions. This would have allowed the immediate extension of the child care credit, the marriage penalty, and other relatively minor benefits affecting working families,

posted March 15, 2017
The Ryan-Trump Healthcare Act: Economic Consequences

While Republicans on the Right and the Far Right wrangle over whether to repeal the Obamacare Affordable Care Act (ACA), or just revise it, the Ryan proposal does both. How can that be? Revise and yet repeal?

The repeal is every dollar and cent that the Obamacare Act taxed the rich and their corporations. The rest, the non-funding features is what’s being revised.

Only in the past 24 hours is the corporate press even discussing the tax increases under the ACA now being totally repealed by the Ryan-Trump bill. That’s because they can no longer ignore it, since it was reported today by the Congressional Budget Office (CBO). But they knew the details weeks ago. So did the Democrats in Congress. Yet they said nothing. How much in tax cuts for the wealthiest individuals and their corporations are we talking about? Over $590 billion over the decade.

About a fourth of the total cost of the ACA, was paid by taxes on wealthy households. The Ryan-Trump proposal calls for a repeal of the 3.8% tax on earned income of the wealthy. Another repeal of the tax on net investment income. Both are gone by the end of this year. Add to that the following business taxes are also now totally repealed: the tax on prescription drug makers that provided $25 billion in annual revenue. The $145 billion repeal of the annual fee on Insurance companies. And the $20 billion on medical device makers. That’s another $190 billion tax cuts for businesses. But there’s still more ‘tax’ repeal. The employer mandate is also repealed. If companies didn’t provide their own employer health insurance, they too had to pay into the system. The CBO report estimates the mandates—employer and individual (also repealed) amounted to $156 million in 2017 alone. That’s inflation adjusted. So the market price is at least 5% higher, for a total of around $165 million. The mix in the employer-individual contribution from the mandates, let’s assume, is 50-50. So the corporate tax cut is at least $82.5 million from the repeal of the employer mandate. Added all up, the total reductions for businesses and the wealthy, according to the CBO’s own estimate, is $592 billion, “mostly by reducing tax revenues”.

What we have in exchange for the $592 billion tax cuts on the rich is a de facto tax hike on the 10 million plus consumers who bought plans on the exchanges, in the form of the elimination of the subsidies that had been provided to help them purchase plans. Subsidy repeal is just a tax hike by another name. How much ‘savings’ per the CBO from the repeal of all premium subsidies and assistance under the ACA? CBO estimates $673 billion.

So the Ryan-Trump Taxman taketh $673 billion from the 10 million consumers who bought plans and he giveth $592 billion to the wealthy and their corporations that need it more than the rest of us, right?. After all, their corporate profits only tripled since 2010 and the wealthy captured only 95% of all the national income gains since 2010, according to studies by the University of California, Berkeley economists (based on IRS data). And the rest of us have done so much better! (By the way, here’s another business-health care trivia item: companies that provide employer health insurance get to write off their contribution costs. Their workers don’t get to write off their share deducted from their wages, but the companies do. Their tax cut savings amounts to $260 billion a year). Employers already providing health plans were supposed to pay an excise tax on their plans, but even the Obama administration put that one off, so the Ryan-Trumpcare delay of that excise tax hike until 2026 is not really a new tax cut or part of the $592 billion.

As the slick marketers on the online sales channels say, ‘But wait, there’s more. There’s a two for one offer!’ The double whammy offer in the Ryan-Trumpcare plan is an additional whopping $880 billion cut in Medicaid spending by the government. Another 10 million of those citizens most in need of health care services—composed mostly of the elderly, the disabled, and single mothers heads of households—will be now thrown under the Trumpcare bus as virtually the entire change in Medicaid will be, yes, repealed.

The ‘Multiplier Effect’ Is Bad News for Ryan-Trumpcare

So how does the $673 billion in subsidy assistance spending cuts and $880 billion in Medicaid spending cuts, plus $592 billion in wealthy-corporate tax cuts, and the new spending of $303 billion, impact the US economy in net terms? It will be a big negative hit on economic growth as measured in Gross Domestic Product terms. Here’s why.

There’s this thing called the ‘multiplier effect’ in calculating GDP. It’s not a theory. It’s an empirical observation. A fact. A dollar in spending gets spent several times over and the total at the end of the year adds up to more than a dollar added to GDP. Spending on lower and middle income groups results in a bigger ‘multiplier’. Spending on the wealthier a smaller. They save more than the net change in income they receive than do lower income households. Furthermore, empirical observation shows that tax cuts of any kind (business, investor, or consumer) have less a ‘multiplier’ effect than do spending, and tax cuts for the wealthy and for corporations even less an effect than consumer tax cuts. Ok. That’s all ‘economics 101’ but it’s true.

The Ryan-Trumpcare plan gives the wealthy and their corporations $592 billion in tax cuts. Will they spend all that? No. Their ‘multiplier’ is about 0.4 according to best estimates. Give the rich a tax cut, in other words, and they’ll spend 40% of it. That 40% means they will spend in the US economy about $230 billion over the course of the decade, or $23 billion a year on average due to their tax cuts. (They may spend more offshore, of course, especially the corporations, but offshore spending adds nothing to US economy and GDP growth).

Unlike the wealthy and corporations, the average consumer has a multiplier of at least 2.0, and the poor on Medicaid higher than that. But let’s conservatively estimate the government spending multiplier for consumers on the $673 billion spending for insurance subsidies and the $880 billion in Medicaid spending is only 2.0. That means a contribution to GDP of $1.55 trillion ($673 billion plus $880 billion) is times two, or $3 trillion total over the decade. That’s $300 billion a year contribution to GDP. But that subsidies and Medicaid spending is now repealed so it’s a reduction of $3 trillion, or $300 billion a year.

In net terms, we therefore get $23 billion a year in wealthy-corporate added contribution to GDP due to their tax cuts and $300 billion a year reduction in GDP due to the repeal of the subsidies and Medicaid. That’s a net reduction of about $275 billion a year from GDP, which occurs in 2018 and every year thereafter (on average) until 2026.

Based on the US current $20 trillion annual GDP, $275 billion annual net reduction is a little over 1% of the total GDP growth, which according to official government estimates is about 2% annually. The annual reduction in GDP from the multiplier and secondary effects is likely around .2% per year. That reduces annual US GDP to 1.8%.

That GDP reduction includes further ‘knock on’, secondary effects as well.

Premium and Price Inflation

The Ryan-Trumpcare proposal will almost certainly result in higher premiums and higher out of pocket costs for healthcare services. The higher inflation will reduce consumer household disposable income. That will leave households less income to spend on other items. Since the inflation in health care spending adds nothing to ‘real’ GDP, there’s no gain in GDP from that. But the reductions in household other items, in order to afford paying for the higher cost health insurance, will reduce ‘real’ GDP. So the net inflationary effect is significantly negative, depending on how much health insurance premiums (and deductibles, copays, etc.) actually rise.

Ryan and Republicans claim that premiums are already rising rapidly under Obamacare, which is true, especially the past year. But that is likely to continue. The Health Insurance companies have been ‘gaming’ the system and the Obama administration did little to stop them. They will continue to do so in the transition to Ryan-Trumpcare and under it going forward as well.

The Ryan-Trumpcare proposal allows insurance companies to hike premiums for older customers up to five times more than premiums charged to younger customers. That’s up from three times under Obama. Trumpcare also now allows insurers to offer ‘barebones’ plans, with lower premiums but with hardly any coverage whatsoever. This trend was a growing problem under Obamacare, as consumers were signing up for super-high deductible plans ($3 to $5,000 per year) just to be able to afford the lower premiums. They were essentially ‘disaster-only’, called “leaners”, super-stripped down health care plans. The new ‘barebones’ policies will cover even less. This less and less coverage for the same (and sometimes higher) premium is in effect a price hike. Less for the same price is a de facto price hike in premiums. The Trumpcare plan also now permits insurers to charge a 30% surcharge for consumers who drop and then re-enroll. It assumes that premiums will decline, according to the CBO, after 2020. Sure, after 30 years of constant health insurance premium hikes, sometimes double digit, now the insurance companies four years from now will start reducing premiums! If anyone believes that, there’s a bridge on sale in Brooklyn they might look into.

What About the US Budget and Deficits?

The Ryan-Trumpcare proposal takes $673 billion and $880 billion out of spending by government and households (not counting ‘knock on’ negative effects on household consumption) and another $592 billion out in tax cuts for the wealthy and their corporations. That’s a $2.145 trillion hit to the US budget over the next decade. The Trumpcare advocates claim the wealthy-investor-corporate tax cuts will stimulate the economy and therefore tax revenues. But the 0.4 multiplier effect suggests only a fraction of that will positively affect the economy and tax revenue growth.

The Trumpcare advocates also claim their plan proposes to give tax credits costing $361 billion to consumers to buy insurance. But that starts only in 2020, so it’s really only $180 billion averaged over the decade. They further point out that another $80 billion in spending will occur in a grant for New Patient State Stability Fund to the States to spend, plus another $43 billion in government spending to hospitals to cover Medicare costs. So that’s about a total of $303 billion new spending to offset the $1.553 trillion spending cuts. Even if the spending additions of $303 billion have a multiplier of 2.0, the net deficit and national debt increase of Ryan-Trumpcare is still more than $900 billion.

So there’s hundreds of billions in net loss from the tax cuts and the net spending. That means massive increases in the US Budget deficit, and consequent rise in US debt, now more than $20 trillion. The CBO summarizes the net deficit growth of only $336 billion. That is ridiculously low.

It should be noted that this net deficit, driven by tax cuts for the wealthy and their corporations, will be quickly followed by another, more massive general corporate tax cut now working its way through Congress as well. That one is estimated to cost more than $6 trillion over the coming decade. It and the Trumpcare tax cuts are in addition.

And both Trumpcare and the daddy of all tax cuts coming follows on more than $10 trillion in business-investor-wealthy tax cuts that have already occurred under George W. Bush and Barack Obama.

No wonder the wealthiest 1% households captured 95% of all income gains since 2009? And if Ryan-Trump have their way, they’ll get to keep at least that much for another decade. America is addicted to tax cuts for the rich, perpetual wars around the world, and the destruction of decent employment and what’s left of any social safety net for the rest. The current political circus in Washington is just the latest iteration of the policy shift to the wealthy and their corporations at the expense of the rest. There’s more yet to come. And it will be even worse.

Dr. Jack Rasmus is author of the forthcoming book, ‘Central Bankers on the Ropes’, by Clarity Press, June 2017, and the recent 2016 publications, also by Clarity, ‘Looting Greece: A New Financial Imperialism Emerges’, and ‘Systemic Fragility in the Global Economy’. He blogs at, where reviews are available.

(For a further analysis of the Ryan-Trumpcare proposal in comparison to the Obamacare ACA it will replace, listen to the Alternative Visions radio show of March 10, at:

posted March 4, 2017
Trump in Historical Perspective-From Nixon to Breitbart

Trump is not a new phenomenon. He is the latest, and most aggressive to date, repackaging of corporate-radical right attempts to reassert corporate hegemony and control over the global economy and US society. His antecedents are the policies and strategies of Nixon, Reagan and Gingrich’s ‘Contract for America’ in the 1990s.

Trump has of course added his ‘new elements’ to the mix. He’s integrated the Tea Party elements left over from their purge by Republican Party elites after the 2012 national elections. He’s unified some of the more aggressive elements of the finance capital elites from hedge funds, commercial real estate, private equity, securities speculators and their ilk—i.e. the Adelsons, Singers, Mercers, and Schwarzman’s. He’s captured, for the moment at least, important elements of the white industrial working class in the Midwest and South, co-opted union leaders from the building trades, and even neutralized top union leaders in some manufacturing industries with fake promises of a new manufacturing renaissance in the US. He’s firmly united the gun lobby of the NRA and the religious right now with the Breitbart propaganda machine and the so-called ‘Alt-Right’ fringe.

Trump is a political and economic reaction to the crisis in the US economy in the 21st century, which the Obama administration could not effectively address after the 2008-09 crash. Trump shares this historical role with Nixon, who was a response to another decline in US corporate-economic political power in the early 1970s; with Reagan who was a response to the economic stagnation of the late 1970s; and with the ‘Contract for America’, a program associated with a takeover of Congress by the radical right in 1994, after the US housing and savings and loan crash and recession in 1989-1992. All these antecedents find their expression in the Trump movement and the policy and program positions that are now taking form under the Trump regime.

American economic and political elites are not reluctant to either change the rules of the game in their favor whenever warranted to ensure their hegemony, targeting not only foreign capitalist competitors when their influence grows too large but also potential domestic opposition by workers and unions, minorities, and even liberals who try to step out of their role as junior partners in rule.
This restructuring of rule has occurred not only in the early 1970s, early 1980s, mid 1990s, but now as well post Obama—i.e. a regime that failed to contain both foreign competition and domestic restlessness. US elites did it before in the 20th century as well, on an even grander scale in 1944-47 and before that again during the decade of the first world war.

What’s noteworthy of the current, latest restructuring is its even greater nastiness and aggressiveness compared to earlier similar efforts to restore control.

Trump’s policies and strategies reflect new elements in the policy and politics mix. He’s rearranged the corporate-right wing base—bringing in new forces and challenging others to go along or get out. New proposals and programs reflect that base change–i.e. in immigration, trade, appeals to white working class jobs, economic nationalism in general, etc. But Trump’s fundamental policies and strategy share a clear continuity with past restructurings introduced before him by Nixon and Reagan in the early 1970s and 1980s, respectively.


Like his predecessors, Trump arose in response to major foreign capitalist and domestic popular challenges to the Neoliberal corporate agenda. Nixon may have come to office on the wave of splits and disarray in the Democratic party over Vietnam in 1968, but he was clearly financed and promoted by big corporate elements convinced that a more aggressive response to global economic challenges by Europe and domestic protest movements were required. European capitalists in the late 1960s were becoming increasingly competitive with American, both in Europe and in the US. The dollar was over-valued and US exports were losing ground. And middle east elites were nationalizing their oil fields. Domestically, American workers and unions launched the second biggest strike wave in US history in 1969-71, winning contract settlements 20%-25% increases in wages and benefits. Mass social movements led by environmentalists, women, and minorities were expanding. Social legislation like job safety and health laws were being passed.

Nixon’s response to these foreign and domestic challenges was to counterattack foreign competitors by launching his ‘New Economic Program’ (NEP) in 1971 and to stop and rollback union gains. Not unlike Trump today, the primary focus of NEP was to improve the competitiveness of US corporations in world markets.

• To this effect the US dollar was devalued as the US intentionally imploded the post-1945 Bretton Woods international monetary system. Trump wants to force foreign competitors to raise the value of their currencies, in effect achieving a dollar devaluation simply by another means. The means may be different, but the goal is the same.

• Nixon imposed a 10% import tax, not unlike Trump’s proposed 20% border tax today.

• Nixon proposed subsidies and tax cuts for US auto companies and other manufacturers; Trump has been promising Ford, Carrier Corp., Boeing and others the same, in exchange for token statements they’ll reduce (not stop or reverse) offshoring of jobs.

• Nixon introduced a 7% investment tax credit for businesses without verification that he claimed would stimulate business spending in the US; Trump is going beyond, adding multi-trillion dollar tax cuts for business and investors, while saying more tax cuts for businesses and investors is needed to create jobs, even though historically there’s no empirical evidence whatsoever for the claim.

• Nixon froze union wages and then rolled back their 1969-71 20% contract gains to 5.5%; Trump attacks unions by encourage state level ‘right to work’ business legislation that will outlaw workers requiring to join unions or pay dues.

• Nixon accelerated defense spending while refusing to spend money on social programs by ‘impounding’ the funds authorized by Congress; Trump has just announced an historic record 9% increase in defense spending, while proposing to gut spending on education, health, and social programs by the same 9% amount.

• Nixon’s economic policies screwed up the US economy, leading to the worst inflation and worst recession since the great depression; So too will Trump’s.

Similarities between Nixon and Trump abound in the political realm as well.

• Nixon fought and railed against the media; so now too is Trump. The only difference was one used a telephone and the other his iphone.

• Nixon declared he had a mandate, and the ‘silent majority’ of middle America was behind him; Trump claims his ‘forgotten man’ of middle America put him in office.

• Nixon bragged construction worker ‘hard hats’ backed him, as he encouraged construction companies to form their anti-union Construction Industry Roundtable’ group; Trump welcomes construction union leaders to the White House while he supports reducing ‘prevailing wage’ for construction work.

• Nixon continually promoted ‘law and order’ and attempted to repress social movements and protests by means of the Cointelpro program FBI-CIA spying on citizens, while developing plans for rollout in his second term to intensify repression of protestors and social movements; Trump tweets police can do no wrong (whom he loves second only to his generals)and calls for new investigations of protestors, mandatory jail sentences for protestors and flagburners, and encourages governors to propose repressive legislation to limit exercise of First Amendment rights of free assembly.

• Trump’s also calling for an investigation of election voting fraud, which will serve as cover to propose even more State level limits on voters rights.

• Nixon undertook a major shift in US foreign policy, establishing relations with Communist China—a move designed to split the Soviet Union (Russia) further from China; Trump is just flipping Nixon’s strategy around, trying to establish better relations with Russia as a preliminary to intensifying attacks on China.

• Anticipating defeat in Southeast Asia, Nixon declared victory and walked away from Vietnam; Trump will do the same in Syria, Iraq and the Middle East.

• The now infamous ‘Powell Memorandum’ was written on Nixon’s watch, (within days of Nixon’s August 1971 NEP announcement)—a plan for corporate America to launch an aggressive economic and social offensive to rollback unions and progressive movements and to restore corporate hegemony over US society; an equivalent Trump ‘Bannon Memorandum’ strategic plan for the same will no doubt eventually be made public after the fact as well.
• Nixon was a crook; so will be Trump branded, but not until they release his taxes and identify payments (emoluments) received by his global businesses from foreign governments and security services. But this won’t happen until corporate America gets its historic tax cuts, deregulation, and new bilateral free trade agreements from Trump.


The parallels in economic policy and political strategy are too many and too similar to consider merely coincidental. Nixon is Trump’s policy and strategy mentor.

Similar comparisons can be made between Trump and Reagan, given a different twist here, a change in emphasis there.

• Reagan introduced a major increase in defense spending, including a 600 ship navy, more missiles and nuclear warheads, and a military front in space called ‘star wars’; Trump loves generals and promises them his record 9% increase in war spending as well, paid for by equal cuts in social programs.

• Reagan introduced a $700 billion plus tax cut for business and investors in 1981, and an even more generous investment tax credit and accelerated depreciation allowances (tax cuts); Trump promises to cut business tax rates by half, end all taxes on their offshore profits, end all inheritance taxes, keep investor offshore tax loopholes, etc.—more than $6 trillion worth– while eliminating wage earners’ tax credits.

• Reagan cut social spending by tens of billions; Trump has proposed even more tens of billions.

• Reagan promised to balance the US budget but gave us accelerating annual budget deficits, fueled by record defense spending and the tax cuts for business of more than $700 billion (on a GDP of $4 trillion), the largest cuts in US history up to that time; Trump’s budget deficit from $6 trillion in business tax cuts and war spending escalation will make Reagan’s pale in comparison.

• Reagan’s trade policy to reverse deteriorating US trade with Japan and Europe, was to directly attack Japan and Europe ( 1985 Plaza Accord and Louvre Accord trade agreements), forcing Japan-Europe to over-stimulate their economies and inflate their prices to give US companies an export cost competitive advantage; Trump’s policy simply changes the target countries to Mexico, Germany and China. Each will have its very own ‘Accord’ deal with Trump-US.

• The first free trade NAFTA deal with Canada was signed on Reagan’s watch; Trump only wants to ‘rearrange the deck chairs’ on the free trade ‘Titanic’ and replace multilateral free trade with bilateral deals he negotiates and can claim personal credit for.

• Reagan encouraged speculators to gut workers’ pension plans and he shifted the burden of social security taxation onto workers to create a ‘social security trust fund’ surplus the government could then steal; Trump promises not to propose cutting social security, but refuses to say if the Republicans in Congress attach cuts to other legislation he’ll veto it.

• Reagan deregulated banks, airlines, utilities, trucking and other businesses, which led to financial crises in the late 1980s and the 1990-91 recession; Trump has championed repeal of the even token 2010 Dodd-Frank bank regulation act, and has deregulated by executive order even more than Reagan or Nixon.

• Stock market, junk bond market, and housing markets crashed in the wake of Reagan’s financial deregulation initiatives; the so-called ‘Trump Trade’ since the election have escalated stock and junk bond valuations to bubble heights.

• Reagan bragged of his working class Republican supporters, and busted unions like the Air Traffic Controllers, while encouraging legal attacks on union and worker rights; Trump has his ‘forgotten man’, and courts union leaders in the White House while encouraging states to push ‘right to work’ laws that prohibited requiring workers to join unions or pay dues.

• Reagan replaced his chair of the Federal Reserve Bank, Paul Volcker, when he wouldn’t go along with Reagan-James Baker (Treasury Secretary) plans on reducing interest rates; Trump will replace current chair, Janet Yellen, when her term as chair expires next year.
Then there are the emerging political parallels between Reagan and Trump as well:
• Even before the 1980 national election was even held, Reagan’s future staff members met secretly with foreign government of Iran to request they not release the 300 American hostages there before the 1980 election; Trump staff (i.e. General Flynn), apparently after the election, met with Russian representatives to discuss relations before confirmed by Congress. Reagan’s boys got off; Flynn didn’t. Events are similar, though outcomes different.

• Reagan attacked the liberal media. Much less aggressively perhaps than Trump today, but nevertheless the once liberal-progressive Public Broadcasting Company was chastised, under threat by the government of budget cuts or outright privatization. It responded by inviting fewer left of center guest opinions to the show. So too thereafter did mainstream television Sunday talk shows (‘Meet the Press’, etc.); Trump’s attack on the media is more aggressive, aiming not to tame the media but de-legitimize it. He has proposed to privatize the Public Broadcasting Corporation.

• Reagan staff directly violated Congressional laws by arranging drug money seizures from Latin America by the CIA to pay for Iranian arms bought for the US by Israel, that were then distributed to the ‘contras’ in Nicaragua to launch a civil war against their duly elected left government. Nixon had his ‘Watergate’, Reagan his ‘Irangate’. Next ‘gate’ will be Trump’s.

• Reagan’s offensive against the environment was notorious, including appointments of cabinet members who declared publicly their intent to dismantle the department and gutting the EPA budget; Trump’s appointments and budget slashing now follow the same path.

• If Nixon’s policy was court China-challenge Russia, Reagan’s was court Russia-isolate China; Trump’s policy is to return to a Nixonian court Russia-confront China.

The corporate-radical right alliance continued after Reagan, re-emerging once again in the 1994 so-called ‘Contract With America’, as Clinton’s Democrats lost 54 seats in the US House of Representatives to the Republican right after backtracking on notable Democrat campaign promises made in the 1992 elections. The landslide was a harbinger of things to come in a later Obama administration in 2010.

The Contract for America proposed a program that shares similar policies with the Trump administration. It was basically a plagiarism of a Reagan 1985 speech. But it provided program continuity through the 1990s, re-emerging in a more aggressive grass roots form in the Teaparty movement in 2008.

TRUMP’s ‘Breitbartification’ of NIXON-REAGAN

Trump is more than just Nixon-Reagan on steroids. Trump is taking the content and the tone of the conservative-radical right to a more aggressive level. The aggressiveness and new elements added to the radical right conservative perspective in the case of Trump are the consequence of adding a Breitbart-Steve Bannon strategic (and even tactical) overlay to the basic Nixon-Reagan programmatic foundation.

The influence of Bannon on Trump strategy, programs, policy and even tactics cannot be underestimated. This is the new key element, missing with Nixon, Reagan, and the Contract with America. The Breitbart strategy is to introduce a major dose of ‘economic nationalism’, heretofore missing in the radical right. This is designed to expand the radical right’s appeal to the traditional working class–a key step on the road to establishing a true Fascist grass roots populist movement in the future.

The appearance of opposition to free trade, protectionism, reshoring of jobs, cuts in foreign aid, direct publicity attacks on Mexico, China, Germany and even Australia are all expressions of Trump’s new element of economic nationalism.

Another element of Bannonism is to identify as ‘the enemy’ the neoliberal institutions—the media and mainstream press, the elites two parties, and even the Judiciary whenever it stands up to Trump policies.

Added to the ‘enemy’ is the ‘danger within’, which is the foreigner, the immigrant, both inside and outside the country. The immigrant is the potential ‘new jew’ in the Trump regime. This too comes from Breitbart-Bannon.

Another strategic element brought by Bannon to the Trump table is the expanded hiring and tightening of ties to various police organizations nationwide and the glorification of the police while denigrating anyone who stands up to them. No more investigations of police brutality by the federal government under Trump.

Still another Breitbart strategic element is to attack the character of democracy itself, raising issues of fraud in voting, and undermining popular understanding of what constitutes the right to assembly and free speech. That is all a prelude to legitimizing further state level limitations and restrictions on voting rights, already gaining momentum before Trump.

Even the military is not exempt from the Bannon-Breitbart strategy: high level military and defense establishment figures who haven’t wholeheartedly come over to the Trump regime are replaced with non-conformist and opportunist generals from the military establishment.

Bannon-Breitbart is the conduit to the various grass roots right wing radical elements, that will be organized and mobilized if necessary, should the old elites, media and their supporters choose to challenge Trump directly with impeachment or other ‘nuclear’ options.

Nixon and Reagan both restructured the political and economic US capitalist system. But they did so within the rules of the game within that system. Trump differs by attacking the rules of the game, and the established elites and their institutions, while offering those same elites the opportunity for great economic personal gain if they go along. Some are, and some still aren’t. The ‘showdown’ is yet to come, and not until 2018 at the earliest.

Trump should be viewed as a continuation of the corporate-radical right alliance that has been growing in the US since the 1970s. The difference today is that that alliance is firmly entrenched at all levels and in all institutions now, unlike in the past, and inside as well as outside the government.

And the opposition to it today is far weaker than in the 1970s, 80s, or 90s: the Democratic Party has virtually collapsed outside Washington DC as it continues myopically on its neoliberal path with its recent selection of Perez as national chair by the Clinton-Obama-Big Donor wing (i.e. the former Democratic leadership Conference faction that captured the party back in 1992) still firmly in control of that party; the unions are but a shadow of their past selves and split, with some actually supporting Trump; the so-called liberal press has been thoroughly corporatized and shows it has no idea how to confront the challenge, feeding the Trump movement instead of weakening it; grass root minority, ethnic, and progressive movements are fragmented and isolated from each other like never before, locked into their mutually isolated identity politics protests; and what was once the ‘far left’ of socialists have virtually disappeared organizationally, condemning the growing millions of youth who express a favorable view of socialism to have to learn the lessons of political organizing from scratch all over again.

But they will learn. Trump and friends will teach them.

Jack Rasmus is author of the 2016 books, ’Looting Greece: A New Financial Imperialism Emerges’, Clarity Press, and ‘Systemic Fragility in the Global Economy’, Clarity Press. His forthcoming book, this June 2017, is ‘Central Bankers At The End of Their Rope’, also by Clarity Press.

posted February 19, 2017
Review of ‘Looting Greece: A New Financial Imperialism Emerges’, New Politics, Winter 2017

“Reflections on Opportunity Lost
Greece and the Syriza Experience

A Review of ‘Looting Greece: A New Financial Imperialism Emerges
By: Jack Rasmus
Clarity Press, 2016, 315 pp., $24.95.

Stylistically, Looting Greece departs sharply from the memoir-like quality of Helena Sheehan’s book. Yet in writing such an analytically clear, historical account of the European and Greek debt crises, Jack Rasmus also has made a valuable contribution.

The book is divided into ten chapters, the first five of which deal with the evolution of the debt crisis prior to the coming to power of the Syriza government in January 2015. Chapters six through nine offer a blow-by-blow account of the failed strategy of Syriza in its dance with the creditors. The last chapter provides a broader overview and comparative analysis of how and why the Troika prevailed. Finally, in an extended conclusion, Rasmus puts forward an argument for financial imperialism as a new and growing form of imperialism.

For Europe, the creation of the European Monetary Union (EMU) and European Central Bank (ECB) in 1999, and the Lisbon Strategy, mark the origin of the current debt crisis. The ECB embarked on a devaluation of the EMU that led to external devaluation, which boosted trade. Simultaneously, internal devaluation occurred through labor market flexibility, that is, reducing labor security, wages, and benefit costs. Germany was the first to engage in neoliberal policies, with internal labor market changes known as Hartz reforms undertaken by a Social Democratic government; these kept German wages stagnant for nearly a decade and created a base for the production of cheap exports. With the German Bundesbank essentially dictating policy to the ECB, and cheap money and cheap goods flowing into the European periphery, the structures of the European economies were transformed. And so long as the money flowed back to the European central economies, primarily Germany, it was a virtuous circle for European capital. However, with onset of the 2008 economic crisis, this dynamic changed:

In addition to bank-provided money capital, German private foreign direct investment into Greece also rose from 1.4 billion euros in 2005 to more than 10 billion by 2008. As the money and capital to Greece was recycled back to Germany and the northern core economies in the form of exports, Germany got business profits, economic growth, and its money capital returned to it. In addition, as financial intermediaries in the recycling of money capital, both core and Greek banks got interest payments from the Greek loans and Greek bonds, Greeks got German and core export goods for a few years, but loaded up on credit and debt in the process for what appears will remain an interminable period of debt repayments well into the future (63-64).

When the banking and financial systems froze up in the aftermath of 2008, the cycle and flow of credit and money stopped between the European core and periphery. And when the peripheral (Spanish, Portuguese, Greek, and other) economies started to slow down, German exports and investment began to shift overseas. This further slowed the flow of credit. As Greece had been running an internal trade deficit with Germany, the initial impact of the credit crunch in Greece was that private banks became loaded with debt, monies that had been borrowed to facilitate imports from Germany.

Rasmus does a good job of showing that this trade deficit was caused neither by higher wages to the Greek working class nor by escalation in Greek consumer spending. Rather the debt was driven up by European Union and ECB policy, in the interest of European capital.

Looting Greece then takes the reader, in exacting if painful detail, through the distinct though compounding circumstances that led to each of the three austerity memoranda.

The first memorandum provided that a total of 110 billion euros was “lent” to the Greek government, 91 percent of which went to bailing out the banks that had been left with bad loans following the 2008 crash. The initial austerity measures demanded by the Troika were premised on unrealistic economic projections of growth but caused very real cuts in wages, pensions, and social security. And the result was a shifting of the massive debt load, mainly from the private banks onto the Greek government.

Then the second memorandum, argues Rasmus, “was primarily to refinance, pay off, and reduce Greek debt held by … private investors” (99), many of whom had already taken advantage of the bond markets to ramp up interest rates paid on Greek debt. Looting Greece does a great job in explaining the ways in which both the rules adopted by the ECB and the neoliberal ideology of “the German Hypothesis” (91), which drove their adoption, played a role in the cycle of debt and austerity that led to a humanitarian catastrophe in Greece.

Chapters five through nine offer an account of the rise of Syriza and a blow-by-blow telling of their approach to the problem of debt and austerity and the process of negotiations once the party came to power in January 2015. Rasmus’ account of the “institutional taming” of the Syriza government is painful to relive, but offers strong support for his argument that in the run up to the third Greek debt restructuring deal of 2015, Syriza and Tsipras would discover there was no option to return to social democracy and social democratic policies without austerity. The choice was either to leave the euro and the neoliberal regime, or remain caretakers for that regime on the system’s periphery, condemned to some degree of perpetual indebtedness, austerity, and long-run negative economic growth (118).

The last chapter provides an explicit assessment of the relative strategies of Syriza and the Troika and the structural/institutional straitjacket within which Syriza was attempting to negotiate. It also unequivocally answers yes to the likelihood of a fourth memorandum, given the logic of indebtedness and austerity and the current strategic course of the Greek government:

To have succeeded in negotiations with the Troika, Syriza would have had to achieve one or more of the following: expand the space for fiscal spending on its domestic economy, end the dominance and control of the ECB by the German coalition, restore Greece’s central bank independence from the ECB, or end the control of its own Greek private banking system from northern Europe core banks. None of these objectives could have been achieved by Syriza alone. Syriza’s grand error, however, was to think that it could rally the remnants of European social democracy to its side and support and together achieve these goals (228-29).

An extended conclusion to Looting Greece is entitled “A New Financial Imperialism Emerges.” In part, Rasmus argues that the views found in Lenin, Bukharin, and Hilferding, that finance capital is subordinate to industrial capital, need to be revised. The space devoted to this argument, however, is limited. While he argues that Greece has become a state dominated by the supra-national imperialist state of the Troika, given the degree to which sections of the Greek left have historically argued for Greece as a neo-colony, or one for which national oppression is primary, the full implications are not untangled by Rasmus.

posted February 10, 2017
Trump As Bilateral Free Trader

To read and listen to the US press and media one would think Trump is against free trade and for protectionism. The media—like some of the American left and progressives—remains obsessively fixed on what Trump says and not what he does. They continually fall into a critique of Trump’s personality traits, at the expense of trying to understand the strategy behind Trump and the billionaire-led new aggressive capitalist forces allied with him and the policies they together are beginning to implement.

The misunderstanding of where Trump is going is especially notable in the media’s coverage of Trump’s emerging trade policies. They interpret Trump’s rejection of the TPP and attacks on Mexico-NAFTA represent Trump as anti-free trade. But nothing could be further from the truth.

Less than a week after assuming office, President Donald Trump signed an Executive Order abandoning the 12 nation Trans-Pacific Partnership (TPP) free trade agreement negotiated by former president, Barack Obama, but not yet ratified by the US Congress. He then quickly attacked Mexico—abruptly cut short a phone conversation with Mexico’s president, Pena Nieto, canceled a meeting with Pena Nieto after demanding Mexico pay for a wall on the US border, and threatened to impose a 20% border tax on goods exported to the United States based on the North American Free Trade Agreement, NAFTA.

Trump’s trade representative, Peter Navarro, then dropped another trade policy bomb by publicly declaring Germany was manipulating the Euro currency unfairly to its advantage, stealing US exports, while similarly exploiting the rest of the Eurozone economy as well.

Trump meanwhile continued to declare that China and Japan were also currency manipulators who were taking advantage of US businesses and increasing their exports at the expense of the US. Their currencies declined by 8% and 15%, respectively, in recent months. The Mexican peso fell by 16% after the US election and the Euro and British pound each by around 20% in 2016.
Trump’s flurry of Executive Orders canceling trade deals, his phone calls to country leaders, his appointed representatives public statements, and his constant ‘tweets’ on social media suggest to some, including the US mainstream media, that Trump is anti-Free Trade, that Trump is ushering in a new trade protectionism, and that his attacks on free trade agreements, like TPP and NAFTA, will precipitate a global trade war. It is this writer’s view, however, that none of this is likely.

Trump is a dedicated free trader. He just rejects multilateral, multi-country free trade deals like TPP and NAFTA. He wants even stronger, pro-US business free trade deals and intends to renegotiate the existing multilateral treaties—to the benefit of US multinational corporations and at the expense of the US trading partners. Trump’s threats of protectionist measures, like the 20% border tax and previous election promises of imposing a 45% import tax on China goods, are primarily tactical aimed at conditioning US trading partners to make major concessions once US renegotiation of past deals and agreements begin. And as for a trade war, the answer is also a very likely ‘no’. The big ‘four’ targeted trading partners—China, Japan, Germany, and Mexico—currently exchange goods and services with the huge US economy amounting between $1 to $2 trillion a year. China-US two-way trade amounts to nearly $500 billion a year, Mexico about as large, and Japan and Germany also account for hundreds of billions of dollars of trade with the US per year. These are the countries with which the US has the largest trade deficits: China’s about $360 billion and the largest, Japan’s close to $100 billion, Mexico and Germany around $60-$70 billion. Given the large volume of lucrative trade with the US, these countries will eventually agree to renegotiate existing free trade treaties and trade arrangements with the US.

What Trump trade policies represent is a major shift by US economic elites and Trump toward bilateral free trade, country to country. Trump believes he and the US have stronger negotiating leverage ‘one on one’ with these countries, and that prior US policies of multilateral free trade only weakened US positions and gains. But free trade is free trade, whether multi or bilateral. Workers, consumers, and the environment pay for the profits of corporations on both sides of the trade deals, regardless how the profits are re-distributed between the companies benefiting from free trade.

Trump’s shift to bilateral trade represents the intent of US economic elites to increase their share of trade profits and benefits at the expense of their capitalist trading cousins. And this is not the first time the US has set out to ‘shake up’ trade relations to its advantage.

In 1971 Richard Nixon introduced his ‘New Economic Program’(NEP), at the center of which was eliminating the post-war Bretton-Woods international monetary system which pegged the US dollar to gold at $35 an ounce. That meant the dollar would devalue, giving US exporters a cost advantage over their rivals in Europe and Japan, which were growing increasingly competitive with US capitalists. The NEP also provided historic new corporate tax cuts and corporate subsidies. The NEP was thus a major assault on US offshore capitalist competition. It also attacked unions and collective bargaining by freezing wages and then reducing the prior two years of union wage increases to no more than 5.5%. The average wage gains of 1970-71, produced by the second largest strike wave in US history those years, garnered union workers gains of 20%-25% in the new contracts. So Nixon was the pioneer of Neoliberalism, which has its major hallmarks both an attack on foreign capitalist competitors as well as on workers wages and social benefits.

Ronald Reagan institutionalized neoliberal policies coming to office in 1980. He too attacked wages and workers’ benefits across a number of policy fronts, and proposed even deeper corporate-investor tax cuts: $750 billion, on a US GDP of $4 trillion at the time. Reagan also launched an assault on US foreign capitalist competitors via new trade initiatives. In 1985-86, when the US under Reagan was losing out exports to Europe and Japan, the US forced Japan to the bargaining table and negotiated the ‘Plaza Accords’ in which Japan was forced to make major concessions to the US. This was immediately followed up by the ‘Louvre Agreements’ with Europe, with the same results.

The Reagan team, led by James Baker of the US Treasury, decided to abandon multi-lateral trade negotiations through the then global ‘General Agreements on Tariffs and Trade’ or GATT. GATT was an attempt to negotiate trade on a global scale involving scores of countries. The US could not get the deal it wanted from GATT trade negotiations, so it turned its fire on its biggest capitalist trading partners—Europe and Japan—and forced the Plaza and Louvre Agreements on them. The results were great for US business, especially multinational corporations. But the agreements play a large part in leading to banking crashes in the early 1990s in Europe and in Japan. Japan thereafter went into chronic recession for the rest of the decade and Germany in the 1990s ended up being described as the ‘poor man’ of Europe.

Similarly today, Trump’s nixing of the TPP and his attacks on Mexico-NAFTA, Germany, and Japan reflect a strategic shift from multilateral free trade strategies and a US policy turn to bilateral approaches to free trade where the US can extract even more concessions from competitors in the critical decade ahead.

One reason for this strategic shift is that global trade volumes have been slowing rapidly in recent years. The global trade pie is shrinking, especially since 2010, when global trade grew at a 20% rate; but this past year the growth will be less than 2%. Capitalist elites are thus increasingly fighting over a smaller share of trade. For the first time, in the past year, the growth of global trade is slower than the growth of global Gross Domestic Product (GDP), even as GDP itself is slowing globally.

Another explanation for the Trump shift is that the US dollar and interest rates are expected to continue to rise. That will result in an increase in inflation in the US. The rising dollar and US prices will mean US multinational corporations’ profits from trade will take a hit. They already are. The Trump shift to bilateral trade is therefore in anticipation of having competitors make up the expected losses of US businesses from trade due to the rising US dollar and US price inflation.

The consequences of the Trump trade shift for the ‘big four’ trade deficit trading partners are mostly negative. 80% of all Mexico exports now go to the US and 30% of Mexico’s GDP is from US trade. Mexico’s peso will continue to fall, import inflation rise and undermine standards of living. Mexico’s central bank will raise interest rates to try to slow capital flight and that will cause more unemployment in addition to import inflation and a slowing economy.

For Europe, the US turn from multilateral free trade will add impetus to Britain’s ‘Brexit’ from the European Union, as well as further legitimize other countries in the EU exiting the Eurozone. France could be next, should the pro-Trump French National Front party there win the upcoming elections this spring, which the polls show it is in the lead.

Japan appears to want to be the first major US trading partner to cut a bilateral deal with Trump. Japan prime minister, Shinzo Abe, continues to shuttle back and forth to Washington to meet with Trump. The first to strike a Trump bilateral deal may get the best terms. Britain’s Teresa May is not far behind, however, equally desperate to cut a bilateral deal to enable the UK to ‘Brexit’ sooner than later.

Where the US clearly loses from the trade policy shift is with China. The end of the TPP means that China will likely expand its own free trade zone, the ‘Regional Comprehensive Economic Partnership’ negotiated now with South Korea, Australis, India and also Japan. The TPP was the US economic cornerstone for its so-called ‘pivot’ to Asia (China) politically and militarily. That has now been set back. The expansion of China’s regional trade zone will also further solidify its currency, the Yuan, as a global trading currency, as well as strengthen its recent Industrial Bank and ‘One Belt-One Road’ initiatives.

The biggest negative impact of the Trump shift on free trade will be the global economy itself. The shift will take time, produce a lot of uncertainty, as well as reactions and counter-measures. That will only serve to slow global trade volumes even further. All emerging market economies will consequently pay a price in lower exports sales for Trump’s strategic trade shift, the ultimate aim of which is to restore US economic hegemony in trade relations over trading partners—a hegemony that has been weakening in recent years. But this is not 1985 or 1971. And a safe bet is that restoration will not prevail.

Jack Rasmus in author of the recently published books, ‘Looting Greece: A New Financial Imperialism Emerges’, Clarity Press, October 2016, and ‘Systemic Fragility in the Global Economy’, Clarity, January 2016. His forthcoming book, ‘Central Bankers At the End of Their Rope: Monetary Policy and the Next Depression’, Clarity, will be available May 2017. Jack blogs at

posted January 11, 2017
Obama’s Farewell Address & Legacies

President Barack Obama’s farewell address to the nation last night was a strange and disappointing attempt that failed to replicate the hope, energy, and optimism of his first 2008 address to the nation.

Instead of celebrating the unity of all those who joined to put him in office, the mood was downbeat, with Obama warning listeners that the country had become more divided than ever during his intervening years in office, that democracy was threatened on many fronts – cultural, legal, and economic – and that the people to whom he was speaking, and throughout the United States, now had the task to take up the fight to protect what’s left and restore it, for clearly, he had not been able to do so.

At times the fire of hope, dominant in his 2008 victory speech, briefly returned. Obama declared, referring to 2008 and 2012, that “maybe you still can’t believe we pulled this whole thing off.” But what exactly was pulled off? What was accomplished that was so great is hard to know. But he apparently thinks something was.

During the speech he listed a series of accomplishments that represent, in his view, the high marks of his presidency: As he put it, he “reversed the Great Recession, rebooted the auto industry, generated the longest job creation period in U.S. economic history, got 20 million people health insurance coverage, halved U.S. dependency on foreign oil, negotiated the Iran nuclear proliferation deal, killed Osama Bin Laden, prevented foreign terrorist attacks on the U.S. homeland, ended torture, passed laws to protect citizens from surveillance, and worked to close GITMO.”

Sounds good, unless one considers the facts behind the “hurrah for me” claims.

The auto industry was rescued, true, but auto workers wages and benefits are less today than in 2008 and jobs in the industry are still below 2008 levels. So, too, are higher paid construction jobs. Half of the jobs created since 2008 include those lost in 2008-2010, and the rest of the net gains in new jobs since 2010 have been low-paid, no benefits, part-time, temp/"gig” service jobs that leave no fewer than 40 percent of young workers under 30 today forced to live at home with parents. More people are working two and three part-time jobs than ever before. Five million have left the workforce altogether, which doesn’t get counted in the official employment and unemployment rate figures. If one counts part-time workers, temps and those who’ve left the labor force or not entered altogether, the jobless rate is not today’s official 4.9 percent but 10 percent of the workforce. That’s 15 million or more still, and after eight years. Meanwhile, those who do have jobs are victims of the great “job churn,” from high to lower wage, from a few, if any, benefits to none at all.

As for ending the Great Recession, the question raised is for whom it ended and what constitutes an end- The U.S. economy grew after 2009, but at the slowest rate of growth historically, post-recession, since the 1930s.

But he did end the great recession for the wealthy and their corporations. Corporations have distributed more than US$5 trillion in stock buybacks and dividends to their shareholders since 2010, as corporate profits more than doubled, as stock and bond markets tripled in value, and as more than US$6 trillion in new tax cuts for corporations and investors (beyond the US$3.5 trillion George W. Bush provided) were passed on Obama’s watch. Not to be outdone by Obama and the Democrats, Trump and the Republican Congress are now about to pass another US$6.2 trillion for investors and businesses, to be paid for in large part by tax hikes for the rest of us and the slashing of education spending, Medicare, Medicaid, health care, housing, and what’s left of the U.S. social safety net.

In his farewell address, Obama also cited how the country “halved its dependency on foreign oil.” True enough, at the cost of environmental disasters from Texas to the Dakotas to Pennsylvania, as oil fracking replaced Saudi sources, in the process generating irreversible water and air contamination in the U.S. In foreign policy, he noted he signed the Iran deal, but left out mentioning that during his administration the U.S. set the entire Middle East aflame with failed policy responses to the Arab Spring, with Hillary’s coup in Libya, to support of various terrorist groups (including al-Qaida) in Syria and to the arming of the Saudis to attack Yemen.

Looking farther east, Obama’s foreign policy outcomes are no better. The U.S. is still fighting in Afghanistan 16 years later – the longest war in U.S. history – as the Afghan government now collapses again in a cesspool of corruption and graft. And the U.S. is still engaged in Iraq. A related consequence of the failed U.S. Middle East policy has been the destabilization of Europe with mass refugee migrations that have been only temporarily suspended by equally massive payoffs to Turkey’s proto-fascist Erdogan government (which also blames the U.S. for the recent failed coup there, by the way).

Other failures on the Obama foreign policy front must include the U.S. militarization of the Baltic states and Eastern Europe following Obama’s inability to rein in Hillary’s U.S. State Department neocons in 2013-14, who made a mess out of their U.S.-financed coup in the Ukraine in 2014. That debacle has driven the U.S. and Russia further toward confrontation, which perhaps Hillary and the neocons may have wanted in the first place (along with a U.S. land invasion of Syria at the time which, in this case, Obama to his credit resisted).

And what about Obama’s much-heralded “pivot to China?” On his watch, China’s currency achieved global reserve status, that country launched a major trade expansion, and a government-established pan-Asian investment bank. The collapse of the U.S.-sponsored Trans-Pacific Partnership will also mean a China-Southeast Asia TPP-style trade agreement, which was already well underway.

On the domestic front, Obama’s legacies must include the most massive deportation of Latinos in U.S. history on his watch, nothing but words spoken from the comfort of the White House about police and gun violence and Black lives murdered on the streets of the U.S. and the rollback of voting rights across the country. And let’s not forget about Barack the great promoter of free trade, signing bilateral deals from the very beginning of his administration, and then the TPP – all of which gave Trump one of his biggest weapons during the recent election.

The media and press incessantly refer to the 2010 Obamacare Act and the 2010 bank regulating Dodd-Frank Act as two of his prime achievements. But Obamacare is about to implode because it failed to control health care costs, which now amount to more than US$3 trillion of the U.S. total GDP of US$19 trillion – the highest in the developed world at nearly 18 percent of GDP (compared to Europe and elsewhere, which spend on average 10 percent of their GDP on health care). The 8 percent difference, more than a trillion per year, goes to the pockets of middle-men and paper pushers like insurance companies, who provide not one iota of health care services.

In his address, Obama touted the fact that on his watch, 20 of the 50 million uninsured got health insurance coverage, half of them covered by Medicaid which provides well less than even “bare bones,” provided one can even find a doctor willing to provide medical services. The rest covered by Obamacare mostly got high deductible insurance, often at an out-of-pocket cost of US$2,000-$4,000 per year. Thus, ten million got minimal coverage while the health insurance industry got US$900 billion a year, which is what the program costs. No wonder the health insurance companies did not oppose such a windfall. Obamacare is best described therefore as a “health insurance industry subsidy act,” not a health care reform act.

Obama will be remembered for scuttling his own program in 2010 by unilaterally caving in to the insurance companies and withdrawing the “public option” while his party refused to even allow a discussion about expanding Medicare to all – the only solution to the continuing U.S. health care crisis. In the wake of Obamacare’s passage, big pharmaceutical companies have also been allowed to price gouge at will, driving up not only private health insurance premiums but Medicare costs as well, and softening up the latter program for coming Republican-Trump attacks.

As for Dodd-Frank, that’s been known as a joke for some time, providing no real controls on greedy bankers and investors who were given five years after its passage in 2010 to lobby and pick it apart, which they’ve done. The one provision in Dodd-Frank worth anything – the Consumer Protection Agency – is about to disappear under Trump. And for the first time in U.S. economic history, no banker or investor responsible for the 2008 crash went to jail on Obama’s watch.

So much for Obamacare and banking reform as his most notable “legacies.”

The true legacies that will be remembered long term will be the accelerating rate of income inequality, the real basis for the growing divisions in America, and the near collapse of the Democratic Party itself.

Under Obama, the wealthiest 1 percent accrued no less than 97 percent of all the net national income gains since 2008, as stock markets tripled, bond markets and corporate profits doubled, and US$5 trillion was passed through to investors as US$6 trillion more in their taxes were cut. Under George Bush, the wealthiest 1 percent of households accrued 65 percent of net national gains. Under Clinton 48 percent. So the rate accelerated rapidly during Obama’s term. Apart from talking about it, Obama did nothing during the last 8 years to abate, let alone reverse, the trend.

The other true legacy will be the virtual implosion of the Democratic Party itself during his administration. As the leader of a party, one would think ensuring its success in the future would be a priority. But it wasn’t. On his watch, nearly two-thirds of all state legislatures and governorships – and countless court positions – have been captured by the Republicans. To be fair, the Democratic Party has been in decline for decades. It has won at the presidential level only when the Republicans split their vote, as in 1992 when Ross Perot challenged George H.W. Bush, and when George W. crashed the entire U.S., and much of the global, economy in 2008.

Obama and the Democrats had a historic opportunity to turn the country in a progressive direction for a decade or more, as Roosevelt did in 1932 and then 1934 by bailing out Main St. with another New Deal. But Obama chose to double down in 2010 on bailing out Wall Street and the big corporations with another US$800 billion tax cut, leaving Main Street behind. Unlike FDR in 1934, who swept the midterm elections that year, gaining a Congress that would pass the New Deal in 1935, Obama doubled down on more for investors, corporations and the 1 percent. He paid dearly for that in 2010, losing control of Congress. U.S. voters gave him one more chance in 2012, but he again failed to deliver. The result is a Democratic Party “debacle 2.0″ in 2016, leaving a Democratic Party in shambles. That, too, will be remembered as his longer-term legacy.

Returning to his farewell address, the affair was a poorly rehearsed caricature of his 2008 inaugural, during which so many had so much hope for change, but ended up with so little in the end. Like a touring theater troupe putting on its last performance blandly, eager to change into street clothes and get out of town. True, the Republicans played hardball and blocked many of his initiatives, but Obama did little to fight back in kind. If he was a community organizer, he was from the most timid in that genre. He kept extending a hand to the Republican dog that kept biting it at every overture. He wanted everyone to unite and pull together. But in politics, winning is not achieved by reasoning with the better nature of one’s opponents. That’s considered weakness, and the biting thereafter is ever more vicious.

But perhaps Obama’s greater political error was he never went to the American people to mobilize support, instead sitting comfortably within the Oval Office of the White House and enjoying the elite circus that is “inside the beltway” Washington. He never put anything personal or physical on the line. And that does not an organizer make. He repeatedly talked the talk, but never walked it. The results were predictable, as the Republican ‘hardballers’ – McConnell, Ryan and crew – threw him ‘beanballs’ every time he came up to bat. He struck out, time and again, calmly walking back to his White House dugout every time.

So farewell, Barack. Your speech was a nostalgic call to your hometown fans in Chicago to go out and organize for U.S. democracy because it’s now in deep “doo-doo.” Take up where I left off, your message? Fair enough. Do what I failed to accomplish, you say? OK. See you at the country club, buddy, after your lunch with Penny Pritzker, the Chicago Hilton Hotels billionairess, who put you in office back in 2008.

And now the United States changes one real estate wheeler-dealer for another, this time one who takes the direct reins of government. And he’s Obama’s legacy as well.

posted January 6, 2017
What is Financial Imperialism? Greece & Euro Periphery As Case Examples


The recurring Greek debt crises represent a new emerging form of Financial Imperialism. What, then, is imperialism, and especially what, when described is financial imperialism? How does what has been emerging in Greece under the Eurozone constitute a new form of Imperialism? How is the new Financial Imperialism emerging in Greece both similar and different from other forms of Imperialism? And how does this represent a broader development, beyond Greece, of a new 21st century form of Imperialism in development?

The Many Meanings of Imperialism

Imperialism is a term that carries both political-military as well as economic meaning. It generally refers to one State, or pre-State set of political institutions and society, conquering and subjugating another. The conquest/subjugation may occur for largely geopolitical reasons—to obtain territories that are strategically located and/or to deny one’s competitors from acquiring the same. It may result as the consequence of the nationalist fervor or domestic instability in one State then being diverted by its elites who are under domestic threat, toward the conquest of an external State as a means to avoid challenges to their rule at home. Conquest and acquisition may be undertaken as well as a means to enable population overflow, from the old to the new territory. These political reasons for Imperialism have been driving it from time immemorial. Rome attacked Carthage in the third century BCE in part to drive it from its threatening strategic positions in Sicily and Sardinia, and also to prevent it from expanding northward in the Iberian Peninsula. Domestic nationalist fervor explains much of why in post-1789 revolutionary France the French bourgeois elites turned to Napoleon who then diverted domestic discontent and redirected it toward military conquest. Imperialism as an outlet for German eastward population settlement has been argued as the rationale behind Hitler’s ‘Lebensraum’ doctrine. And US ‘Manifest Destiny’ doctrine, to populate the western continent of North America, was used in the 19th century as a justification, in part, for US imperialist wars with Mexico and native American populations at the time.

But what may appear as purely political or social motives behind Imperialist expansion—even in pre-Capitalist or early Capitalist periods—has almost always had a more fundamental economic origin. It could be argued, for example, that Rome provoked and attacked Carthage to drive it from its colonies on the western coast of Sicily and thus deny it access to grain production there; to deny it strategic ports on the eastern Iberian coast from which to trade; and eventually to acquire the lucrative silver mines in the southernmost region of the peninsula at the time. Nazi Germany’s Lebensraum doctrine, it may be argued, was but a cover for acquiring agricultural lands of southern Russia and Ukraine and as a stepping stone to the oil fields of Azerbaijan, Persia and Iraq. And US western expansion was less to achieve a population outlet than to remove foreign (Mexico, Britain) and native American impediments to securing natural resources exclusively for US use. US acquisitions still further ‘west’—i.e. of Hawaii, the Philippines and other pacific islands were even less about population overflow and more about ensuring access to western pacific trade and markets in the face of European imperialists scrambling to wrap up the remaining Asian markets and resources.

Imperialism is often associated with military action, as one State subdues and then rules the other and its peoples. But imperialist expansion is not always associated with military conquest. The dominating State may so threaten a competitor state with war or de facto acquisition that the latter simply cedes control by treaty over the new territory it itself had conquered by force—as did Spain in the case of Florida or Britain with the US Pacific Northwest territories. Or the new territory may be inherited from the rulers of that territory. Historically, much of the Roman Empire’s territory in the eastern Mediterranean was acquired this way. Or the new territory may be purchased, one state from the other—as with France and the Louisiana Purchase, Spanish Florida accession, and Russia’s sale of Alaska to the US.

In other words, imperialism does not always require open warfare as the means to acquisition but it is virtually always associated with economic objectives, even when it appears to be geo-political maneuvering or due to social (i.e. nationalist ideology, domestic crises, population diversion, etc.) causes.


Wealth Extraction as Basic Imperialist Objective

Whether via a bona-fide colony, near-colony, economic protectorate, or dependency the basic economic purpose of imperialism is to extract wealth from the dominated state and society, to enrich the Imperialist state and its economic elites. But some forms of Imperialism and colonial arrangements are more ‘profitable’ than others. Imperialism extracts wealth via many forms—natural resources ‘harvesting’ and relocation back to the Imperial economy, favorable and exploitive terms of trade for exports/imports to and from the dominated state, low cost-low wage production of commodities and semi-finished goods, exclusive control of markets in the dominion country, and other ways of obtaining goods at lower than market price for resale at a higher market price.

Wealth extraction by such measures is exploitive—meaning the Imperial economy removes a greater share of the value of the wealth than it allows the dominated state and economy to retain. There are least five historical ways that classic forms of imperialism thus extract wealth. They include:

Natural Resource Exploitation

This is where the imperial economy simply takes the natural resources from the land and sends them back to its economy. The resource can be minerals, precious metals, scarce or highly demanded agricultural products, or even human beings—such as occurred with the slave trade.

Production Exploitation

Instead of relocating the resources and production in the home market at a higher cost, the production of the goods is arranged in the colony, and then shipped back to the host imperial country for resale domestically or abroad. The semi-finished or finished goods are more profitable due to the lower cost of production throughout the supply chain.

Landed Property Exploitation

The imperialist elites claim ownership of the land, then rent it out to the local population that once owned it to produce on it. In exchange, the imperialist elites extract a ‘rent’ for the use of the land.

Commercial Exploitation

Here the imperialist elites of the home country, in the form of merchants, ship owners, and bankers, arrange to trade and transport goods both to and from the dominated economy on terms favorable to their costs. By controlling the source of money, either as currency, credit, or precious metals, they are able to dictate the arrangements and terms of trade finance.

Direct Taxation Exploitation

More typical in former times, this is simple theft of a share of production and trade by the administration of the imperialist elite. The classic case, once again, was Imperial Rome and its economic relations with its provinces. It left the production and initial extraction of wealth up to the local population, while its imperial bureaucracy, imposed locally, was simply concerned with ensuring it received a majority percentage of goods produced or traded—either in money form or ‘in kind’ that it then shipped back to its home economy Italy for resale. A vestige of this in modern colonial times was the imposition of taxation on the local populace, to pay for the costs of the Imperial bureaucracy and especially the cost of the imperial military apparatus stationed in the dominated state to protect the bureaucracy and the wealth extraction.

The preceding five basic forms of exploitation and wealth extraction have been the subject of critical analyses of imperialism and colonialism for more than a century. What all the above share is a focus on the production and trade of real goods and on land as the source of the wealth transfer. However, the five classical types of exploitation and extraction disregard independent financial forms of wealth extraction. Both capitalist critics and anti-capitalist critics of imperialism, including Marxists, have based their analysis of imperialism on the production of real goods. This theoretical bias has resulted in a disregard of the forms of financial exploitation and imperialism, which have been growing as finance capital itself has been assuming a growing role relative to 21st century global capitalism.

Classical 19th century British Imperialism extracted wealth by means of production exploitation, commercial-trade, and all the five basic means noted above. It imposed political structures to ensure the continuation of the wealth extraction, including crown colonies, lesser colonies, protectorates, other dependency relationships, and even annexation in the case of Ireland and before that Scotland. The British organized low wage cost production of goods exported back to Britain and resold at higher prices there or re-exported. It manipulated its currency and terms of trade to ensure profit from goods imported to the colony as well. Its banks and currency became the institutions of the colony. Access to other currencies and banks was not allowed. Monopoly of credit sources allowed British banks to extract rentier profits from in-country investment lending and trade credits. They obtained direct ownership of the prime agricultural and mining lands of the colony. They preferred and promoted highly intensive and low cost labor production. Production and trade was structured to allow only those goods that allowed Britain investors the greatest profits, and prohibited production and trade that might compete with Britain’s home production. But the colonial system was inefficient, in the sense that was costly to administer. The cost of administration was imposed on the local country in part, but also on the British taxpayer.

Twentieth century US Imperialism proved a more efficient system. It avoided direct, and even indirect, political control. State legislatures, governments, and bureaucracies were locally elected or selected by local elites. There were few direct costs of administration. The local elites were given a bigger share of the exploitation pie, as joint production and investment partnerships in production and trade were established with local capitalists as ‘passive’ minority partners who enjoyed the economic returns without the management role. Only when their populace rebelled did the US provide military assistance, covertly or overtly, either from afar or from within as the US set up hundreds of military bases globally throughout its sphere of economic interests. The US and local militaries were tightly integrated, as the US trained local officer ranks, and even local police. Security intelligence was provided by the US at no cost. The offspring of the local elites were allowed to enter private US higher education establishments and thereby favorably socialized toward US interests and cooperation. Foreign aid from the US ended up in the hands of local elites as a form of windfall payment for cooperation. US sales and provision of military hardware to the local elites provided built-in ‘kickback’ payment schemes to the leading politicians and senior military ranks of the local elites. Local military forces became mere appendages of the US military, willing to engage in coups d’etat when necessary to tame local elites that might stray from the economic arrangements favoring more local economic independence beyond that permitted by US interests.

US multinational corporations were the primary institution of economic dominance. They provided critical tax revenues to the local government, employment to a share of the local workforce, and financial credits from US globally banking interests. The US also controlled the dominated states’ economies through a series of new international institutions established in the post-1945 period. These included the International Monetary Fund, established to address local management of currency and export-import flows when they became unbalanced; the World Bank, which provided funding for infrastructure project development; and the World Trade Organization and free trade agreements—bilateral or regional—which enabled selective access to US markets in exchange for unrestricted US corporate foreign direct investment into dominated state economies, financed by US financial interests. These investment and trade arrangements were tied together by the primacy of the US currency, the dollar, as the only acceptable trade currency in financial and goods exchanges between the US and the local economy.

This new ‘form’ of economic imperialism—a system of political dominance sometimes referred to as ‘neo-colonialism—was a far more efficient and profitable (for US capitalists and local capitalist elites as well) system of exploitation and wealth extraction than the 19th century British system of more direct imperial and colonial rule. And within it were the seeds of yet a new form of imperialism based on financial exploitation. As the US economy evolved toward a more financialized system after 1980, the system of imperial dominance associated with it began to evolve as well. Imperialism began to rely increasingly on forms of financial exploitation, while not completely abandoning the more traditional production and commerce forms of wealth extraction.

The question is: What are the new forms of imperialist financial exploitation developed in recent decades? Are new ways of extracting wealth on a national scale emerging in the 21st century? Are the new forms sufficiently widespread, and have they become sufficiently dominant as the primary method of exploitation and wealth extraction, to enable the argument that a new form of financial imperialism has been emerging? If so, what are the methods of finance-based wealth extraction, and the associated political structures enabling it? If what is occurring is not colonialization in the sense of a ‘crown colony’ or even dependent ‘neo-colony’, and if not a political protectorate or outright annexation, what is it, then?

These queries raise the point directly relevant to our current analysis: to what extent does Greece and its continuing debt crises represent a case example of a new financial imperialism emerging?

Greece as a Case Example of Financial Imperialism

There are five basic ways financial imperialism exploits an economy—i.e. functions to extract wealth from the exploited economy—in this case Greece.

• Private sector interest charges for financing private production or commerce
• State to State debt aggregation and ‘interest on interest’ wealth extraction
• Privatization and sale of public assets at fire sale prices plus subsequent income stream diversion from the private acquisition of the public assets
• Foreign investor speculative manipulation of government bonds
• Foreign investor speculation on stock, derivatives, and other financial securities’ as a result of price volatility precipitated by the debt crisis

The first example represents financial exploitation related to financing of private production and trade. It is associated with traditional enterprise-to-enterprise, private sector economic relations where interest is charged on credit extended for production or trade. This occurs under general economic conditions, however, unrelated to debt crises. The remaining four ways represent financial exploitation enable by State to State economic relations and unrelated to financing private production or trading of goods.

One such form of financial exploitation involves state-to-state institutions, public sector economic relations where interest is charged on government (sovereign) debt and compounded as additional debt is added to make payments on initial debt.

Another involves financial exploitation via the privatization and sale of public assets—i.e. ports, utilities, public transport systems, etc.—of the dominated State, often at firesale’ or below market prices. Privatization is mandated as part of austerity measures dictated by the imperialist a precondition for refinancing government debt. This too involves State to State economic relations.

Yet a third example of financial exploitation also involving States occurs with private sector investor speculation on sovereign (Greek government) bonds that experience price volatility during debt crises. State involvement involvement occurs in the form of government bonds as the vehicle of financial speculation.

Even more indirect case, but nonetheless still involving State-State relations indirectly, is private investor speculation in private financial asset markets like stocks, futures and options on commodities, derivatives based on sovereign bonds, and so on, associated with the dominated State. This still involves State to State relations, in that the investor speculation is a consequence of the economic instability caused by the State-State debt negotiations.

Finance capitalists ‘capitalize’ on the debt crises that create price volatility of financial securities, making speculative bets on the financial securities’ volatility (and in the process contributing to that volatility) in order to reap a financial gain from changes in financial asset prices. And they do this not just with sovereign bonds, but with stocks, futures options, commodities, and other financial securities.

All the examples—i.e. interest on government debt, returns from firesale prices of public assets, investor speculative gains on sovereign bonds, as well as from financial securities’ price volatility caused by the crisis—represent pure financial wealth extraction. That is, financial exploitation separate from wealth extraction from financing private production. All represents ‘money made from money’, in contrast to money made from financing the production or trading of real assets.

During the pre-2008 boom cycle years, credit flowed to Greece and the periphery to enable the purchase of core exports of goods. When the core stopped the flow of credit after 2008, what was left was debt. But interest on debt was as lucrative to the core banker interests as was purchase of export goods. Repayment of loans and other credit extended by the Troika to Greece’s government and central bank were recycled back to Eurozone core private interests—95% of same, to be exact. Without true economic recovery after 2009 for the periphery, each time more debt had to be extended in order to repay old debt, and interest payments were added to interest payments and compounded. Financial imperialism increasingly assumed the form of state-to-state debt and interest flows, accruing eventually in the northern core banks and financial institutions. New means for financial exploitation were spun off and added in the process—financial gains from privatization and financial gains from government bonds and financial securities speculation. Greece was sucked into the debt machine where the fix itself became the cause of ongoing and ever worsening entanglement, with no release in sight.

For Eurozone bankers, it was just too good a ‘deal’ to terminate: perpetual debt interest money flows back to them, guaranteed by credit extended by the Troika institutions. Overlay on top of that, cycles of opportunity for financial speculation on bonds, stocks, derivatives, and other financial securities. It was even better than Greeks buying German and northern core exports of real goods to Greece. Exports might decline with economic conditions and competition. But debt repayments were guaranteed to continue—for as long as Greece remained in the Euro system at least. Financial imperialism may just prove more profitable than older forms of imperialism based on production and commerce of goods.

This shift to financial exploitation and therefore financial imperialism is a harbinger of things to come for smaller economies and states that allow themselves to be integrated into 21st century capitalism’s drive to concentrate and integrate economies into broader customs (goods trade) unions, currency unions, and banking unions in which the larger, more economically powerful states and economies will naturally dominate and exploit financially their weaker members. A new form of integrated financial imperialism is thus in the making. Greece is likely to be but the forerunner.

posted December 28, 2016
The German Origins of Greek & Euro Periphery Debt’ (Complimentary Chapter 2 from my 2016 ‘Looting Greece’ Book)

The Greek debt crisis of 2010—and the subsequent second and third crises of 2012 and 2015 respectively—are all ultimately rooted in the 1999 creation of the European Monetary Union (EMU). That historic event established the Eurozone and its single currency, the Euro, as well as activated the European Central Bank (ECB) as the central bank for the region. It also introduced a set of related monetary and fiscal policies that, together with the single currency and central bank, have led directly over time to the excessive buildup of debt in Greece (and throughout the periphery of the Euro region) and that country’s periodic debt crises since 2010.

The 1999 creation of the EMU set in motion a monetary policy driven, export-centric economic strategy that has been the hallmark economic policy ever since. The newly created central bank, the ECB, was now able to inject increasing amounts of the new currency, the Euro, thereby increasing the money supply and in turn devaluing the new currency. Devaluation by means of central bank money injection meant lower costs for Euro exports—the aim of which was to enable Euro region business to gain a larger share of external global trade. At the same time, expanding the supply of the new currency also resulted in a significant increase of available credit for investment internally, within the Euro region. That boosted internal exports-imports flow within and between the Eurozone states as well. Stimulating both ‘external’ and ‘internal’ Euro exports was clearly one of the primary strategic objectives behind creating the EMU.

Complementing this central bank, exports-driven economic strategy was a Euro fiscal policy based on austerity. Austerity policy is designed to reduce government social benefits spending, cap or cut government jobs and wages, and to privatize and sell off public works. But austerity policy also includes programs to contain and compress wage costs in the private sector by means of what is referred to as ‘labor market reform’. Fiscal austerity reduced government workers wages and benefits, as well as compensation benefits costs (pensions, paid leave, etc.) to the private sector working class. Often overlooked, however, is that fiscal austerity also includes labor market reform measures targeting the private sector workforce as well—also designed to reduce business wage and benefits costs. Lower unit labor costs translates into more competitive ‘external’ exports—i.e. exports sales from the Eurozone to the rest of the world. Thus ‘external devaluation’ by means of central bank currency and monetary policy is complemented by ‘internal devaluation’ by means of labor market restructuring and wage compression.

Both forms of devaluation that aimed to boost exports were key objectives behind the creation of the EMU 1999. The former—external devaluation—was to be achieved by the creation of the single currency and the new central bank; the latter—internal devaluation—to be achieved in what was called the ‘Lisbon Strategy’ at the time.

Whichever country could successfully control the policies of the new central bank, the European Central Bank, could benefit most from the monetary policy and the single currency. And which country within the EuZ carried out labor market reform-labor cost compression first and most aggressively would also capture a lion’s share of intra-Eurozone trade at the expense of its Eurozone country partners.

In other words, the Eurozone’s monetary and fiscal austerity policies were complementary; both targeted reducing the cost and price of Eurozone exports—the one by means of monetary driven currency devaluation; the other by means of fiscal driven wage compression under the cover of ‘labor market reforms’.

From its very inception, therefore, the creation of the Eurozone was a neoliberal class-based, incomes redistribution project—i.e. the ECB-Euro and monetary policy designed to boost corporate profits through expanding exports; the fiscal austerity and labor market reform policies designed to contain and compress wage and benefits incomes.
The ECB monetary policy had the added income inequality effect of providing excess liquidity that was also designed to stimulate financial asset prices (stocks, bonds, etc.) and consequently buttress and expand capital gains incomes; whereas Eurozone austerity fiscal policy contributed to income inequality by containing, and even lowering, working incomes by reducing government employment, cutting public sector wages and benefits, and reducing national pensions costs, subsidies, and other social benefit forms of compensation involving the general working populace.

The Lisbon Strategy and ‘Internal Devaluation’

The labor market reform and labor cost compression elements behind the creation of the Eurozone in 1999 were initially represented in what was called the ‘Lisbon Strategy’, which was launched soon after 1999.

Beyond the grandiose sounding cover phrases about creating a 21st century European capitalism, in its essence the Lisbon Strategy 2000 called for ‘flexible labor markets’. Translating that into real terms meant the new Eurozone economic elite would restructure their labor markets and reduce wage and benefits costs by hiring more contingent labor—i.e. part time, temp, and contract workers—in lieu of traditional full time labor which would be reduced by attrition and other means and replaced with contingent labor. The vast majority of new hires would be contingent. The workforce would grow increasingly by means of contingent labor. That was not all. Greater ‘flexibility’ in labor markets, as it was called, also meant stretching out the workweek to raise productivity, which in turn meant rolling back the gains of the shorter workweek achieved in some economies like France and elsewhere. That required weakening the role of unions and bargaining—also a strategic goal of the Lisbon Strategy—and reducing state support for unemployment and other social benefits. Reversing the trend toward early pensions and retirement was another major element. So was eliminating the various legal restrictions on laying off or firing full time employed workers. Creating more labor mobility was the code word; forcing more workers to become more mobile by reducing job security was the precondition for more mobility. They called it ‘flexible’ labor markets and even coined the term, ‘flexicurity’ to represent the reduction of job security.

The Lisbon Strategy was a 10-year plan for transforming the labor markets in such way as to reduce the rate of labor compensation gains and raise productivity in order to lower total labor costs. But all of that was for the purpose of making Eurozone exports more competitive in global markets. In its essence, it was about making workers produce more at less cost in order to subsidize exports at their expense. But while this may result in boosting Eurozone exports in relation to the rest of the world economy, so far as the distribution of exports within the Eurozone was concerned, which country moved first and most aggressively to implement labor market reform (and reduce labor costs) would gain a relative advantage with regard to the share of intra-Eurozone exports and trade. ‘Internal devaluation’ thus had a secondary effect. Not only could it complement currency (euro) devaluation to boost external exports to the rest of the world. It could also boost a given Eurozone country’s share of intra-Eurozone exports and thus result in severe trade and money flow imbalances within and between Eurozone partner countries.
Now that there was one currency, the Euro, and one central bank, the ECB, no member of the Eurozone could devalue their respective currencies independently against another Eurozone member in order to boost its exports and growth in order to remain competitive within the Eurozone. That traditional ‘currency exchange rate’, an ‘external’ devaluation route was now left up to the ECB only, and whoever controlled the ECB controlled that action. And at the apex of that control of the central bank and monetary policy was Germany and its northern banker allies. Other Eurozone member countries, especially in the periphery (like Greece) could only compete with Germany and its northern friends by depressing the wages and intensifying the work of their respective labor forces. Internal devaluation by means of labor market restructuring and labor cost reduction was the only open option. The Lisbon Strategy thus marked the commencement of an internal ‘race to the bottom’ with regard to wage incomes within the Eurozone. And whichever country and economy began that race first, ran the hardest, and thus resorted to internal devaluation by means of labor market reform the most aggressively, would be the country and economy that would garner the lion’s share of intra-Eurozone exports and growth. And that country and economy would prove to be Germany.

Germany’s Lisbon Strategy Implementation

A review of the Lisbon Strategy 2000 at mid-decade showed that indeed Germany had begun implementing restructuring and labor market reforms earlier and more aggressively than its EuZ counterparts. Between 2003 and 2005 Germany embarked on a major labor market restructuring, called in German the ‘Hartz Reforms’, for the director of personnel for Volkswagen, Peter Hartz, who was tasked with developing the formal proposals.

The German labor market reforms aimed at reducing German workers wages by converting many full time workers into part time, or what were called ‘mini-jobs’, and cutting hourly wages. Mini jobs were limited to 16 hours work a week. The reforms were successfully imposed because of the high unemployment afflicting German workers at the time, who were unable to resist. Assisting the implementation was the complicity and support for the reforms by the Social Democratic Party, who were ‘rewarded’ with a junior seat in the new neoliberal government and regime.
German unemployment remained chronically high throughout the 1990s, in the 9%-10% range, rising to 10%-10.5% during the EMU transition years of 1999-2003. It was often referred to as the ‘sick man of Europe’ in the latter half of the 1990s and early 2000s. In the 2003-2005 ‘Hartz’ labor market reform phase, German unemployment rose still higher, average 11%-12% as late as 2005-2006. Unemployment was necessary to tame the German working class and get it to accede to labor market reforms.

German worker labor costs did not rise at all in the first half of the decade as labor reforms were implemented. And once they were fully implemented, labor costs began to decline from 2005 on. German unit labor costs were essentially flat for the entire period from 2000 to 2008, as a consequence. That kept German export costs low and even declining. Stuck with the Euro, the rest of the Eurozone economies could not compete by lowering their own currency exchange rates, as before 1999. They could only cut wages or raise productivity by reducing employment. And they were well behind the German curve by 2005-2006. The EuZ internal devaluation by labor cost reduction allowed Germany to sweep up intra-Euro exports share at the expense of many of its Eurozone partners, especially in the southern periphery economies of the Eurozone which included Greece, for whom Germany was its single largest source of Greek imports.

The successful internal devaluation effects of Germany’s labor cost reductions at mid-decade are evident in the shift in Germany’s intra-Eurozone exports to other Eurozone countries after the labor market restructuring in Germany.
In the 1990s, two thirds of German trade was with other European Union countries. Germany ran trade deficits most of that decade. In other words, it imported more than it exported until 1999. But whereas its exports significantly lagged imports before 1999, German exports after 2003 accelerated. Exports as a share of its overall GDP rose from 37% at the start of 2005 to 50% by 2008, as exports surged from 731 billion euros at the beginning of 2005 to 984 billion euros by 2008—a 34% gain.

Even more impressively, Germany’s trade surplus (exports exceeding imports) rose from 731 billion euros in 2003 to 984 billion in 2008, or more than 250 billion more annually. Its cumulative trade surplus (exports over imports) over same five year period, 2003 to 2008, totaled 853 billion Euros—or more than $1 trillion in equivalent dollars. More than half of that surplus 853 billion came at the expense of its other Eurozone and EU partner countries, representing intra-Eurozone trade. And much of that was no doubt due to the wage compression-labor cost reduction advantages Germany achieved as a result of its early and aggressive Lisbon Strategy implementation launched in the 2003-2005 period. German exporters gained a massive $853 billion Euro trade surplus; but German workers initially paid for it.

However, labor cost reduction via internal devaluation wasn’t the only means by which Germany obtained for itself a greater relative share of both external (rest of world) and internal (intra-Euz) exports sales. Germany’s domination of the early ECB and the ECB’s monetary policy also helped Germany attain that massive 853 billion trade surplus.

Germany’s Bundesbank Dominates the ECB

The ECB is a federation of national central banks. Factions have existed within it from the very beginning. The German central bank, the Bundesbank, with allies in other Euz members, has succeeded in dominating the decisions of the ECB in most cases. That was especially true during the beginning period of 2000-2003 and up to 2008, although that influence has been recently weakening.

The single currency, Euro, facilitated the expansion of credit within the EuZ. The Bundesbank’s influence insured that the ECB would enable a sufficient supply to German and other northern ‘core’ banks. Much of that supply was eventually directed to investment into the periphery economies, and much in turn was recycled back in the form of purchase of German exports by the periphery. The ECB made loans to German-core banks, which in turn loaned to private banks in the periphery or invested directly themselves in the periphery. Another channel was ECB loans to periphery economy central banks, which in turn re-loaned to private banks in their economies. The periphery private banks then made loans to local businesses, consumers, and even local governments in the periphery economies. These are the roads by which the Euro money capital flowed from the ECB into the periphery economies like Greece. Residential and commercial real estate was a particular beneficiary of money flows to the periphery, and the excess lending to the sector led to housing bubbles in a number of periphery economies. Still another channel of money flows to the periphery was non-bank German and core business providing what is called ‘foreign direct investment’ (FDI). Core northern EuZ companies expanded into the periphery by acquisitions, by buying majority stakes in companies there, providing capital for partnerships with periphery businesses, or by establishing wholly-owned subsidiaries in the periphery economies, especially after 2005.

Through the various channels, massive money capital flowed into the periphery economies, including Greece, from the German-core north, made possible by the ECB’s new Euro currency creation. The new Euro resulted in money creation by the ECB. And much of that headed south and into the Euro periphery economies, as real estate construction, housing, and relocated manufacturing boomed in the periphery. And much would eventually again flow back again to the German-core north—either in the form of interest payments on private loans and debt, repatriation of profits by subsidiaries and operations of northern businesses that relocated to the periphery, and, not least, in the form of rising purchases of German-core exports by businesses, households, and governments in the periphery economies that experienced significant economic growth and income gains in the period leading up to the 2008 global crash.

Money capital was being recycled, as the EMU 1999 project intended. However, while that recycling was producing rising profits and income in the German-core north it was leaving a massive residue and overhang of debt in its wake in the periphery economies.

So long as new money capital was provided by the ECB to German-core banks and businesses, and so long as the latter continued to extend credit and expand in the periphery, the recycling would continue to work. But the cycle broke with the banking-financial crash of 2008-09. Credit to the periphery reduced from a flow to a trickle, from both private and ECB sources. And with money capital and credit inflows to the periphery evaporating, periphery purchases of German-core exports plummeted in turn.

Germany would address the break by abandoning its key role of ensuring that the ECB continued the flow of credit to the periphery. Without a continuing flow, the ‘twin deficits’ mechanism of credit provided to the periphery in order to purchase northern EuZ exports would break down. Which it did.

Levels of ECB credit flows to the periphery were reduced and blocked by German domination of ECB policy. The de facto ‘German rule’ established when the ECB was created was that the ECB could not provide credit to governments or private businesses, only to Eurozone member central banks. Eurozone private banks were not lending, due to the 2008-09 crash. And Eurozone member central banks were not bailing them out very well either—unlike the massive bank bailouts underway in the US and UK by their central banks at the time.
When EuZ periphery business and household demand for German-northern core exports declined sharply in 2008-09, Germany and the northern core exporters made a strategic error. Instead of ensuring money capital cycling to the periphery, Germany shifted its exports strategy. It de-emphasized intra-Eurozone exports and focused more on external exports sales abroad—especially to China and emerging markets whose economies would boom beginning in 2010.

The Eurozone periphery economies were left to figure out for themselves how to restart their economies after 2008-09, without sufficient credit, without German-core FDI, and with their own domestic banking system having collapsed. What they were ‘left with’, however, was a residue of massive debt overhang from the pre-2009 period. No economy in the Eurozone periphery was more exposed to this post-2008 dilemma than was Greece.

Greek Debt as Private Bank-Investor Debt

Greek government debt over the 2005 though 2008 period rose only modestly. Most of the pre-2008 debt buildup was on the private side, not public, during this period. Private Greek banks, as well as northern core banks doing business directly in Greece, may have been accumulating private debt. But, according to Eurostat statistics, Greek government debt rose only 13% from 2005 through 2008.

In contrast, Greek imports of German goods over the period rose by 70%. Germany was Greece’s biggest trading partner. Greece’s cumulative trade deficit with Germany alone—i.e. imports of German goods minus Greek exports to Germany—rose between 2005 and 2008 by 201 billion Euros. That 70% and 201 billion required money capital from somewhere. That somewhere was borrowing either from Greek banks, who borrowed from the Greek central bank who in turn obtained the Euros from the ECB; or private Greek borrowing from other Eurozone banks who ultimately got their money from the ECB; or else credit extended by German-Core businesses directly to Greek households and businesses. The Greek private banking system had become bloated with debt, not the Greek government. At least, not yet. That would come, as the essence of the first Greek bailout of 2010 was to reduce the debt for private investors and banks, in effect transferring that debt to the Greek government. With an only 13% rise in government debt over the period, 2005 to 2008, a sovereign or government debt crisis was not a problem as late as 2008. It was private debt that was accumulating.

That private debt, moreover, was owed primarily to German-northern core banks. According to a Bank of International Settlements report in early 2010, Greek debt owed to foreign banks was $303 billion. Of that, $43 billion was owed to German banks and $75 billion to French banks, as of third quarter 2009. And that did not count credit default swap debt held by the eight large German ‘Landesbanks’, the total of which was not reported.
The first Greek debt bailout that occurred in May 2010 was therefore not really about bailing out Greece’s government. It was about ensuring that German banks would not have to be bailed out if Greek banks and the Greek government failed to make required payments on their debt held by German and other northern core banks. It was about bailing out the banks.

As a former finance minister for Greece, Yanis Varoufakis, summed up the 2010 Troika imposed debt deal “more than 91 percent went to make whole the French and German bankers, by buying back from them at 100% euros bonds whose market value had declined to less than 20 euros”.

The Myth of Greek Wages as Cause of Debt

German-core apologists and economists—both then and today—like to argue that escalating Greek purchases of German-core exports was the consequence of rapidly escalating Greek wages, excessively generous increases in Greek pensions, excessive public employment hiring, rising Greek public workers’ wage, and overly-generous Greek government subsidies spending which freed up real wages to purchase the exports. It was true that Greek workers’ wages were 25% higher than German workers by 2008. But the differential was more due to German workers’ real wage compression relative to the Greeks’, than it was excessive Greek workers nominal wage hikes.

For example, average annual wages in Greece rose, but moderately, in the first half of the decade, until 2005. Thereafter, annual wages were stagnant from 2005 through 2008. The average annual wage for a Greek worker was at around 22k euros per year in 2005. Wages thereafter rose by only 238 euros from 2005 to 2008. That’s about 1%. After 2010 wages then declined sharply, due to the global crisis of 2008-09, falling annually to 21.8k euros annually in 2010. Wages would plummet after 2010, as austerity policies and a long economic depression became the norm in Greece.

What the record does show is that, while Greek purchases of German exports amounted to 289 billion euros in the four years from 2005 through 2008, Greek wages were stagnating and then declining. Greek purchases of German-Core exports could therefore not have been caused by rising Greek wages; it could only have been enabled by escalating credit and debt, a good part of which was eventually recycled back to Germany and others in the form of Greek household purchases of German exports.

Yet another way to deflate the myth that the Greek wages and consumer spending was the cause of the debt buildup is to consider household debt as a percent of GDP. According to Eurostat figures, in 2008 German household debt as a percent of German GDP was 55%. France was also 55% and Spain 80%. But Greek household debt as a percent of GDP was still lower—at 50%.

Private Debt was only the beginning, however. The flow of credit from German-Core north to Greece and the south, in order to buy exports from the German-Core north, was not the only cause of the total Greek debt build up. Sovereign or government debt would soon be added to total overall Greek debt.

From Private to Government Debt

Afflicting not only Greece but the entire global economy, the 2008-09 crash led to growing budget deficits in Greece as it did elsewhere globally. As in all deep economic contractions, Greek tax revenues fell sharply and government spending on essential ‘safety net’ programs rose. Private sector banks and businesses also required more government subsidies, more business tax cuts, and thereafter bail outs beginning 2008. All that meant more government borrowing and thus rising government debt as well. So the deep contraction of the Greek economy in 2008-09 represents a second major cause of the rise of Greek total (private plus government) debt.
Greek sovereign debt as a percent of GDP rose by only 13%–to 113% of GDP—over the four years from 2005 to 2008. But, as the 2008-09 recession hit hard, Greek debt in 2009 alone accelerated 17%, to 130% of GDP. Clearly the harsh recession and rising deficits caused by falling tax revenues and rising social spending was largely responsible for the 17% jump in government debt.

But government debt rises not solely as a result of a slowing economy that creates deficits and a rising volume of borrowing. It can expand as well as a consequence of rising interest rates on that accumulating debt. As Greek sovereign debt grew in the course of the 2008-10 crisis, global financial ‘vulture’ speculators—i.e. shadow bankers like hedge funds, asset managers, fund managers, investment banks, etc.— flocked in and drove up the cost of Greek government bonds. That increased Greece’s debt financing costs, driving up sovereign debt levels even further.
Debt from government bond speculation thus piled upon government debt incurred from deficits due to the economic crash of 2008-09, which piled upon debt from imbalances in exports and money (credit) flows to Greece. Debt is insidious. It develops multiple ways and begets itself.

The ECB could provide more credit (debt) to the Greek central bank, to lend in turn to Greek banks and businesses requiring bailout. But the ECB could not directly lend to governments to refinance their government debt. German rules set up in 1999 and soon after prohibited this, and German and its majority faction on the ECB’s governing board of represented Eurozone central banks enforced the practice. So what EuZ institutions apart from the ECB could extend credit to the Greek government—i.e. provide credit to make payments on its previous Greek government debt?

The International Monetary Fund was one possible source. But the IMF’s long standing policy is not to provide funding alone. Other institutions would have to participate in any government ‘bail out’ loan package. So too would the economy in question have to ‘put some skin in the game’, so to speak, before any IMF lending agreement. That is, Greece would have to cut spending, raise taxes, sell off public assets, or whatever in order to generate a surplus budget to ensure debt repayments on the loan package would be ensured. The ECB could not bail out Greece’s government debt. The IMF would not alone and only in part. Where would the rest of the lending come from then? From the third member of what would be called the ‘Troika’, in this case the European Commission, the pan-Eurozone fiscal governing body.

When the Greek government’s debt load continued to grow due to the deep 2008-09 crash and lack of robust recovery 2009, plus rising interest on the growing debt due to speculation in government bonds, Greece had to obtain further credit somewhere. Eurozone fiscal (German) rules also set up in 1999 did not allow a Eurozone member government to run budget deficits more than 3% of annual GDP. Just as Eurozone member states could not exercise any independent monetary policy to boost exports, they could not engage either in fiscal deficit spending beyond a very narrow range up to 3% of GDP.

Government debt also rose as a consequence of Troika debt restructuring. In exchange for a new, restructured debt and loan, a member government had to make a clear commitment as to how it would repay the new (plus old) loans and debt. And in an environment of slow or no growth, with a 3% deficit cap, that meant debt repayment at the expense of government spending reductions and tax hikes and public works and public asset sales—i.e. from fiscal austerity. Yet fiscal austerity leads to still further slowing of growth and the need for still more debt borrowed in order to service prior debt.

This was still not the entire picture with regard to causes of government debt escalation. As the Greek debt crisis ‘matured’ from late 2009 on, and concern over government debt and potential default spread to Spain, Portugal, Italy and other periphery economies, the value of the Euro currency in declined. This meant, for Greece, that it would have to borrow more—i.e. increase Greece’s government debt—because the Euro would now buy less given its decline. Greece would have to issue more Greek government bonds—i.e. raise debt even further—to obtain the same amount of money from bond sales.

And there was yet another related debt issue. With the Eurozone and global economy not recovering much from the 2008-09 global crash, Greece was earning far less from exports sales than before. That meant it had less income with which to make its payments on interest and principal on prior debt. Debt crises are the result of not only excess debt but of insufficient liquid income available necessary to ‘service’ (i.e. pay principal and interest) that debt; also, the terms and conditions under which debt servicing is arranged.

Greece’s government debt crisis, which erupted in late 2009-early 2010, did so due not only to the rising debt levels caused by the recession of 2008-09 and the intensification of speculation on Greek government bonds, but also due to the fall in the euro’s value and the lack of Greek export income and flow of funds into Greece from northern banks and investors that occurred with the banking crash of 2008.

In short, in addition to private debt, there were multiple causes behind rising government debt after 2008: in addition to private debt from money capital inflows there was

• government debt due to the 2008-09 global economic and banking crash and lack of normal economic recovery in the aftermath;

• there was government debt increase due to global financial speculators driving up the cost of Greek bonds in 2009-10;

• there was government debt rise as a consequence of fiscal austerity measures imposed on Greece by Eurozone ‘Troika’ members as part of the debt restructuring of spring 2010;

• and there was additional debt caused by the decline in the euro currency itself at the time.

The German Origins of the Greek Debt

Greek private debt escalation is tightly correlated with the arrangements described above, by which massive credit from German and northern core banks (enabled by the ECB) flowed into Greece to finance German export purchases by Greece. German origins of Greek government debt was more opaque. It originates in German insistence in early 2010 that Greece solve its own debt problems, which was an invitation for global speculators to drive up Greek bond rates and therefore debt. It also originates in the dictating by German and allied core bankers of the severe austerity terms imposed on Greece in the eventual May 2010 first debt deal.

Data shows that the escalation of Greek private sector debt occurs only after 2004. Private debt to purchase German-northern core exports escalates beginning 2005. Greece’s trade deficit with Germany and Greek private sector debt is thus highly correlated with the structural reforms implemented by Germany circa 2005. Greek government, or sovereign, debt thereafter only begins to escalate 2008-09, correlated with the global economic crash and the government bond speculators that followed.

Between 2005 and 2008 German exports to Greece almost doubled, from roughly 54 billion to 92 billion and amounted to more than $250 billion by the time of the first Greek debt crisis in 2010. During the same period, Greek exports to Germany rose from only $17 billion to $20 billion, for a total of $112 billion. Greeks were buying far more German goods and boosting German GDP than vice-versa. Greece therefore had to ‘borrow’ $138 billion from somewhere to pay for the difference. That borrowing, and thus debt, flowed directly from German and northern Europe banks, from Greek banks ultimately owned or provided capital from German and other northern Banks, or from Greek banks that borrowed from northern banks. Germany and the ‘core’ got export-driven growth; Greece got German imports and in turn also got an ever-rising pile of debt.

Greek private debt is thus a phenomenon of the post-2004 period, a point which corresponds to Germany’s ascendance to a position of intra-Eurozone trade dominance, and a period of German and allies’ dominance of the ECB, culminating with Germany’s blocking and/or limiting ECB money capital loans to the Greek government after 2008 needed to service its debt.

Stuck with the Euro single currency, Greece could not compete with the German-northern core export juggernaut after 2005, by lowering their own currency exchange rates to devalue their own currency. The euro was now the currency and Germany controlled its fate through its faction on the ECB. Greece had only one vote in 17 in the ECB. Greece was further hamstrung with regard to fiscal policy, prevented by additional rules that required a Eurozone member country to run deficits of no more than 3% of GDP. Nor did Greece, or the other periphery economies, launch their own ‘internal devaluation’ via labor market reforms to compress wages and the cost of their own exports. That would be embedded later, in the austerity packages of debt restructuring imposed upon them.
In short, Greece—like the other periphery economy members—in effect gave up any sovereignty with regard to monetary policy, and for all but a narrow scope of action concerning fiscal policy, when it accepted the Euro as single currency, the ECB as its central bank, and the 3% deficit rule. Germany and its northern allies now indirectly controlled decisions concerning those parameters—as well as the ability to impose penalties on those periphery states like Greece attempting to break ranks.

Both Greek economic growth and Greek government debt during the decade 1995 to 2005 was no more excessive or unstable than other Eurozone economies at the time. Greek GDP in 1995 was equivalent to 110 billion euros and had doubled to 200 billion euros by 2005. After growing by nearly $100 billion in the 1995-2005 decade, Greek GDP rose only by $25 billion in the five year period 2005-2010. Greece’s sovereign debt to GDP ratio in 1995 was 97%; by 2007 it had risen to only 107%. But by 2009—in the wake of the 2008-09 crash—government debt rose to 130% of GDP and a year later, in 2010, to 148%. The surge in government debt was thus clearly a consequence of the 2008-09 global banking crash and deep recession, the speculation on Greek government bonds by ‘vulture’ shadow bankers and investors, and the debt terms imposed on Greece by the Troika itself.

What happened around 2005 on the private side, and then after 2008 on the public side, and immediately after thus provides the true explanation for Greece’s debt acceleration and the debt crises that began to erupt in 2010. What happened was German and ‘core’ banks plowed credit and money capital into Greek banks and businesses. In addition to bank provided money capital, German private foreign direct investment (FDI) into Greece also rose from 1.4 billion euros in 2005 to more than 10 billion by 2008. As the money and capital to Greece was recycled back to Germany and the northern core economies in the form of exports, Germany got business profits, economic growth and its money capital returned to it. In addition, as financial intermediaries in the recycling of money capital, both core and Greek banks got interest payments from the Greek loans and Greek bonds. Greeks got German and ‘core’ export goods for a few years, but loaded up on credit and debt in the process for what appears will remain an interminable period of debt repayments well into the future.

German-Core provided money capital, credit and debt-fueled export binge after 2005 hobbled Greece’s real economy, to put it lightly. The problems were covered up so long as credit flows from the northern core continued and economic growth in Greece up to 2008 continued. But once the credit flows, and income from economic growth, collapsed in Greece the growing mountain of private debt could not be ‘serviced’—i.e. paid. Greek banks, and northern banks operating in Greece, then experienced massive losses requiring bailout. The first casualty of the excess private debt run-up were the banks. The 2010 debt restructuring would be all about bailing out those banks and northern core Eurozone investors, institutional and individual, as well as non-Eurozone global speculators. In bailing out the banks and investors, their private debt would in effect be ‘transferred’ into Greek government debt. The Greek debt crisis thus may have originated ultimately in the German-northern core, but it would be dumped on the Greek banking system at first, to be eventually dumped thereafter to Greek taxpayers and especially Greek workers who would be required to ‘pay the bill’ through various fiscal austerity and de facto labor market reform measures imposed on Greece by the Troika. German-northern core gain thus became Greece and Greek workers’ pain.

posted December 3, 2016
Taming Trump–From Faux Left to Faux Right Populism in US Politics

In the weeks since the November 8 US presidential election, the dim outlines of what a Trump presidency might look like are beginning to appear. Trump continues to retreat on several fronts from his campaign ‘right populist’ positions, while doubling-down on other radical positions he previously proposed during the campaign. How to make sense of his apparent evolving policy divergence?

One the one hand, Trump appears to moving closer to traditional Republican party elite positions on big reductions of taxes on corporate-investor elites and on delivering long standing elite demands to deregulate business; at the same time he appears to be moderating his position with regard to that third top priority of the US neoliberal elite—i.e. free trade—as he back-peddles rapidly from his campaign attacks on trade and free trade agreements.

At the same time Trump appears to be doubling down on his campaign’s radical social policy issues like immigration (promising to immediately deport or jail 3 million), taking a harder line position on law and order and civil liberties (declaring those who burn the flag should lose their US citizenship or go to jail), reaffirming his intent to privatize education services (by appointing a hard liner as Education Secretary who strongly favors charter schools and school vouchers), attacking environmental programs and protestors (calling for restoration of the Keystone pipeline), while showing early signs of moving closer toward Congressional Republican elite leaders, like Paul Ryan, and Ryan’s radical proposal to replace current Medicare with a federal ‘voucher’ system that would freeze the amount Medicare would pay doctors and hospitals as health care costs continued to escalate.

Areas Still Vague: Infrastructure Spending and Foreign Policy

Less clear than Trump’s above policy bifurcation are what policy positions he will take on fiscal and monetary matters.
Trump campaign promises of more government spending on ‘infrastructure’ still remain too vague. Will that mean more oil and gas pipelines and coal mining? More tax cuts to construction companies? More direct subsidies to businesses? And how much ‘spending’ is involved? Early indications are the infrastructure program may be mostly tax credits for businesses—and in addition to his massive corporate-investor tax cuts also planned.

Trump in the past has called for $1 trillion. (Clinton had called for a $250 billion program over five years. That $50 billion was just about the amount the US now provides in subsidies to agribusiness). And so far as infrastructure spending’s impact on the US economy, $50 billion a year is insignificant. $1 trillion and $100 billion a year over ten years, Trump’s campaign proposal, might have some effect on US GDP. But GDP growth does not necessarily translate into benefits in income to all—as the last eight years has clearly shown as 97% of all GDP-income gains under Obama have gone to the wealthiest 1% households. Nor will infrastructure spending likely translate much into job creation—and could especially result in little positive impact on jobs if infrastructure spending is composed mostly of tax cuts, business subsidies, and high capital-intensive projects that may take years to realize. It is highly unlikely Trump is talking about a 1930s-like ‘public works program’. It’s more likely to be the federal government writing checks to big construction companies, pocketing nice profit margins in the process.

Trump’s influence over monetary policy in general—and interest rates in particular—will be even more minimal. The US elites will strongly oppose any Trump attempts, as promised during the election, to ‘reform’ the US central bank, the Federal Reserve. And the Federal Reserve’s interest rate hike cat is already out of the bag. Long term rates have been already rising rapidly and will continue to do so, as will the US dollar in turn, as the two—rates and the dollar—are highly correlated. And the Federal Reserve is clearly on track to raise short term rates soon.

The question is whether the rise in interest rates—short and long term–will discourage investment, thus hiring and job creation, in those industries not directly affected by infrastructure spending? Will the negative effect of rate rises on investment and job creation be greater than the positive effect of infrastructure spending? Will those negative effects emerge sooner than the positive from infrastructure investment? And will the rising dollar associated with the rate hikes further reduce manufacturing exports and jobs in that sector? The dollar rise has already stagnated manufacturing output and employment. Further increases will almost certainly result in a contraction of manufacturing exports and jobs.
‘Yes’ is probably the answer to all the above, which means Trump job creation net effects during his first two years in office may not materialize. Moderate at best job creation from delayed infrastructure spending could be more than offset by job loss from rising rates and the US dollar.

The other major Trump policy area that still remains vague is foreign policy. It is not clear as yet what Trump’s true positions will be on NATO and China. But the US elite are intent on bringing him around to their positions and will exert extreme pressure on Trump in order to do so. They have already begun to do so. They will not let up on the pressure.
Trump’s intent is to become more militarily aggressive against ISIS in the middle east, and possibly ‘partnering’ with Russia to do so. That latter possibility is currently causing fits with US elites behind the scene. Backing off from NATO military deployment provocations in eastern Europe, the US-NATO current policy, while looking favorably on Europe’s backing off of economic sanctions against Russia, may also become Trump policy.

Trump’s Big Three Cabinet Appointments

Whether that foreign policy redirection occurs under Trump is now playing out in backroom maneuverings within the Trump administration with regard to key Trump cabinet appointments involving departments of State, Defense, and remaining national security positions. The elite want Romney. Populist right forces in the Trump camp do not. And behind the appointment issue is whether a Secretary of State position under Trump becomes a mere figurehead to Trump foreign policy decided in the White House by Trump and his close aides like General Flynn and others.

The US elite want Romney and they want their Secretary of State to have independence. Should Romney get the appointment here, it will signal they have prevailed. The result will be a bifurcation on foreign policy directions in the Trump administration which will ultimately break down at some point.

Obama’s recent ‘tour’ of NATO countries should be viewed as an effort by US elites to try to ensure NATO allies that Trump’s campaign proposals targeting NATO will not be the final position of the Trump regime. The Obama tour was in part at least to hold NATO allies’ hands and ask them to be patient—i.e. the elite will bring Trump around to reality. Be patient. We will eventually ‘tame’ Trump is no doubt the message. After Europe, Obama scurried back to Asia, attending the APEC economic summit, and providing no doubt similar assurances to US allies there that Trump would ‘come to his senses’ as cooler elite heads advised him.

Trump appears to have just appointed General (nicknamed ‘mad dog’) Mattis. Petraeus, a more establishment figure under consideration is out; or maybe Petraeus decided himself that hitching a ride on a Trump administration was not the greatest career restoration move. But the Mattis appointment still leaves the direction of a Trump administration’s policies on NATO, Russia, or Asia up in the air.

The third key cabinet appointment is Secretary of the Treasury. Here Trump’s transition team initially appeared to favor the CEO of the biggest US bank, Chase’s Jaime Dimon. Treasury secretaries in recent decades, under US Neoliberalism since Reagan, have always been heads of some big financial institution. And in recent decades, the Treasury Secretaries have repeatedly been alumni of the big investment bank, Goldman Sachs. And so too is Mnuchin, continuing the trend of the wheeling-dealing ‘shadow banking’ sector still dominating the Treasury.

Together with Wilbur Ross, appointed to Commerce Secretary, also a ‘shadow banker’ and former Private Equity Firm owner, the Mnuchin-Ross team will determine banking and economic policy in the Trump administration. Their initial target will no doubt be dismantling what’s left of the skeleton of the Dodd-Frank banking regulation bill.

Trump ‘Free Trade’ Policy

Trade as a policy has both foreign policy and economic dimensions. The US elite is now facing a major challenge, having temporarily lost the TPP and with the Europe TTIP in trouble, given a year of intense political instability on the horizon in Europe. They will focus on just keeping the prospects alive temporarily. In the meantime, the thrust is to prevent the deterioration of NAFTA, CAFTA, and other bilateral free trade deals signed under Bush and Obama. The objective will be to stop Trump from making any changes in NAFTA in the short term, and ensuring whatever changes after is cosmetic and token in the longer term.

Taming Trump may prove more difficult with regard to Free Trade, however, compared to getting Trump to implement US elite objectives on matters of tax cuts and deregulation. Trump’s positions during the election were strongly anti-Trade. It played a key role in his election victory, and clearly in the key states of Pennsylvania, Michigan and Wisconsin. It will be more difficult for him to renege and about-face on the trade issue. Taming Trump will prove more difficult.

But here’s how it nonetheless may develop:

Reversing the worst effects of NAFTA cannot be done in the short term. The elites have many ways to slow and block his efforts. Some token renegotiation of NAFTA will eventually take place, resulting in minor adjustments. In the meantime, however, Trump can gain publicity and placate his base on this issue by achieving ‘victories’ discouraging specific companies to abandon plans to relocate to Mexico or abroad. Recent events involving Ford Autos and the Carrier company are examples of what may be the Trump short term policy direction with regard to trade.

As for other multilateral free trade treaties, Trump has declared he would stop the TPP, Transpacific Partnership Asia-US free trade deal. But that was already dead in Congress. And the US-Europe counterpart to the TPP, the TTIP, is impossible in 2017 with the accelerating upheaval in European politics and coming unraveling of the Eurozone after next week elections in Italy and Austria, and with elections in France, Netherlands and Germany on the agenda in 2017.

What will Trump’s longer term free trade policy look like? It is important to understand that Trump is not against free trade. He opposed multilateral programs, which were at the center of US neoliberal elite objectives.

Trump’s free trade policy will be to negotiate country-by-country free trade deals. Renegotiating free trade will make it appear as if he’s dismantling it. But the process will take a longer time, certainly not in the first year or two. The US elite can probably live with that. Their task in ‘taming Trump’ is to ensure he does not take precipitative action against current free trade deals, that he puts off such action, and settles into a longer term bilateral renegotiating policy. In the meantime, it will be more highly visible personal actions like the Ford and Carrier deals, to make it appear he is doing something on the matter.
What that all means is that except for token company examples like Ford and Carrier, free trade deals will continue. The US elite will get to continue their Neoliberal policy priority of free trade, just in another form that emphasizes slow, token changes to existing agreements and bilateral new free trade agreements. But free trade bilaterally is still free trade. And job losses and wage compression, the two major consequences of free trade deals, will continue. It’s just free trade in another form.

Trump is betting that the lack of job creation, from a retreat from is promises to ‘bring back jobs’ lost to trade, will be offset by job creation from infrastructure spending. Meanwhile, he can and will claim he is saving jobs by talking down Ford, Carrier, and other companies. Alongside this, bilateral free trade deals will go forward.

Massive Tax Cuts and Business Deregulation

The other two major priorities of the US elite are big corporate-investor tax cuts and deregulation. Here Trump has signaled he is in full agreement with the elite. No need to ‘tame’ Trump here. These policies will be forthcoming almost immediately in the new Trump regime.

Trump has proposed to cut corporate taxes even more than the Ryan-Republican Party faction in Congress. From the current 35% corporate rate, Trump proposed reducing it to 15% while Ryan and friends to 20%. Both are in agreement to reduce the top income tax rate for their wealthy friends, from current 39.6% to 33%. The Capital gains tax, now 23.8%, is scheduled for a cut to 20% by Trump and 16.5% by Congress. Both Trump and Ryan plan to abolish the Estate Tax, reducing taxation on estates worth $7 million (now the threshold) altogether. Both are strong proponents of allowing big US multinational corporations in Tech, Pharma, Banking and others to ‘repatriate’ $2.5 trillion in taxes they have been hoarding in profits offshore to avoid paying the US 35% rate to a low of 10%. The 4.8% surtax on the wealthiest to help fund Obamacare will also certainly disappear. Also notable is that net taxes on the middle class will rise under both plans, and the countless loopholes for investors will continue.

It should be noted that this massive tax cut package amounts to $4.3 trillion, according to Trump. But according to the Tax Policy Center research group, it will reduce federal revenues by $6.2 trillion. The wealthiest 1% would realize a 13.5% cut in their taxes, while the rest of all households would have a 4.1 % rise in their taxes.

This $4.3 or $6.2 trillion follows a $5 trillion tax cut agreed to by Obama, Democrats and Republicans in Congress that took place in early 2013 as part of the then phony ‘fiscal cliff’ crisis. That followed a $800 billion tax cut pushed by Obama at the end of 2010, in which Obama continued the previous Bush tax cuts for another two years and then some. That followed a preceding $300 billion tax cut in Obama’s 2009 initial recovery program. And all that came after George W. Bush’s estimated $3.4 trillion in tax cuts in 2001-04, 80% of which accrued the wealthiest households and businesses. So under Bush-Obama, taxes for the rich and their corporations totaled approximately $9.5 trillion, and now Trump-Ryan propose another $4.3-$6.2 trillion minimum, running the total up to more than $15 trillion.

And corporations and their lobbyists won’t wait for the tax cut legislation. They are already pressing for a Trump reversal of Obama administration measures over the past year to slow the rampant ‘tax inversion’ scams by big multinational tech, pharma and banks, that have been avoiding taxes by shifting their company headquarters offshore on paper. Corporations have avoided paying hundreds of billions of dollars in US taxes in just the past three years by means of ‘inversion’ scams. Trump doesn’t have to wait for Congress, for him to open the floodgates allowing massive corporate tax avoidance through unlimited ‘inversions’ once again. Big business lobbying arms, like the Business Roundtable, American Bankers Association, and National Association of Manufacturers are reportedly already demanding Trump lift all restrictions on ‘inversions’.

Trump and Ryan-Congress are no less in synch on the third policy priority of US elites—deregulation. Like corporate-investor tax cutting, Trump and the US elite are on the same page when it comes to deregulation. High on this agenda will be slicing the Affordable Care Act (Obamacare). Trump will not need to repeal it and won’t. It will be given a ‘death by a thousand cuts’ and allowed to collapse. Already in big trouble as a program unable to control health insurance costs or prescription drug price gouging, ACA provisions like mandatory insurance purchases and the 4.8% surtax on the wealth to help pay for the subsidies are likely to go quickly. A similar major deregulation will be the Dodd-Frank banking regulation act, which has already had much of its provisions defanged since its passage in 2010. A main target will be the Consumer Financial Protection Agency.

To gain public awareness of his pledges to deregulate, Trump will immediately in 2017 repeal, however, as many Obama Executive Orders as possible. Receiving the brunt of this will be immigration provisions, like the Dream Act, and numerous Environmental regulations. Trump’s EPA head will no doubt immediately reverse the regulations involving the industrial plant pollution proposals not yet or just recently proposed. In Labor matters, overtime pay rules and private pension rules are targets as well. Trump will immediately in 2017 reverse all the regulations he possibly can by Executive Order. That includes the Dream Act for youth of immigrants in the first 100 days, and new Executive Orders giving new powers of detention and arrest to border and police officials. Efforts by cities and universities to provide sanctuary to undocumented immigrants will result in immediate harsh financial and other actions against those same. Recent minimal rulings by the National Labor Relations Board favoring union workers and institutions will be quickly reversed as well.

The US elite, in Congress and beyond, will tolerate much of this deregulation, as well as a significant assault on immigration, law and order, policy repression of ethnic communities, deportations, limits on civil liberties, cuts in social programs, and privatization proposals across the board involving education, Medicare, and healthcare. Their priority is passage of policy in the areas of tax cuts, deregulation, and delaying any potential actions that might endanger existing free trade agreements.

Getting Trump to back off his campaign promises—i.e. his right wing populism—in areas of foreign policy and trade redirection are also elite priority issues. Trump has never needed ‘taming’ on tax and deregulation issues. And he will be allowed to proceed with elements of his right wing populism that involve attacks on environment, law and order, civil liberties, and immigration—so long as the latter involves low paid undocumented immigration from Latin America and does not interfere with the 500,000 high paid tech jobs legally given to Chinese and Indian immigrants on H1-B and L-1/2 visas. And so long as he doesn’t proceed so fast that it precipitates excessive social unrest. Go slow, he will be told. Nothing too extreme. And ensure that taxes, deregulation, trade and foreign policy are priority and are concluded first.

The US elite will abandon Trump if he doesn’t play ball on taxes, deregulation, going slow on Trade, and if he upsets long-standing foreign policy directions too radically. They will let him run amuck on issues of immigration, civil liberties, law and order, environment, and privatizing of social programs. So how might that elite ‘tame trump’ if and when necessary? The preparations just in case are already underway. They include the following:

How To Tame Trump

There are at least six ways by which they can, and are now preparing, to control him.

1. Trump Business Conflicts

Trump has 111 businesses in 18 countries. It is not possible to even put these in a blind trust, as previous presidents have done with their business interests. The elite will gather all the incriminating evidence they can to reveal his conflicts of interests, if necessary, at some point. They will threaten Trump quietly first to reveal and proceed against him and, if he doesn’t respond in their favor on some issue or policy, start the process of undermining his reputation and credibility in the media and with public opinion. Keeping the heat on will be mainstream media like the New York Times, Washington Post, and major broadcast TV sources. It won’t be difficult to dig up the dirt.

2. Trump Foundation

Like the Clinton Foundation, as with foundations of many of the super wealthy, the Trump Foundation is a source of potential major scandal. Incriminating or even insinuating investigations will be undertaken quietly, and then publicly if necessary.

3. Nepotism Charges

Trump has already shown a preference for family member involvement in his administration. That opens him to criticism of nepotism. That becomes the nexus for alleging Trump using the presidency to enrich himself indirectly through his family connections.

4. Trump’s Tax Returns

Trump may not have released his returns during the campaign, and probably for good reason. Few in the wheeling-dealing commercial real estate sector are squeaky clean when it comes to tax avoidance and even fraud. The worse of his tax matters will be quietly passed on to the New York Times and other media. They can be revealed at the appropriate juncture, if Trump doesn’t ‘play ball’ with the elite on matter of policy the latter consider strategic.

5. Attacks on Trump Appointees and Family

Trump can be damaged and undermined by attacking his appointments and family members. Favorite targets will be radicals like Steve Bannon of Breitbart who has been brought into the Trump White House as advisor. Trump’s son-in-law may prove another favorite target. So might even be his appointed national security adviser, General Flynn. Already major feature pieces on Bannon have appeared in the Times and media. The media continues to keep alive Flynn’s alleged pro-Russia views and contacts. Meanwhile, talking heads experts continue to appear on the mainstream press TV shows like CNN, MSNBC, CBS and others continuing the press the election themes of Trump’s character limits and dangerous personal traits. The elite will keep these issues of Trump judgment and volatility before the public, until Trump comes around and adopts US elite policies, especially on foreign policy, trade, and other matters.

6. Violations of Law

Trump’s proclivity to engage in tweets may yet get him in serious legal trouble. So too may any precipitous incitement of radical elements and actions that result from his public statements. Or any premature over-reaching Executive Orders.

From ‘Faux Left’ to ‘Faux Right’ Populism

In 2008 Barack Obama ran for president based on a program that in some ways was clearly populism. Entering the president primary race late, in early 2008, Obama’s advisers vaulted him to the nomination six months later by employing a strategy that consistently was to the left of the other Democrat candidates, Hillary Clinton and John Edwards. Obama appeared the popular left candidate. Many voters were sufficiently misled. Immediately after elected, however, Obama proceeded to appoint advisers and cabinet members who were clearly representatives of the banking industry and business interests in general. Neoliberal policies were given a ‘left cover’, as Obama then ruled from the ‘center-right’ on key matters of economic policy of primary interest to the elite—i.e. bailing out the banks, rescuing big businesses from bankruptcy, ensuring the stock and bond markets boomed, pressing for free trade deals, going slow and minimalizing banking regulation, ensuring healthcare reform did not include the ‘public option’ or even consider Medicare expansion, and turning over US jobs and trade policy to figures like Jeff Immelt, CEO of General Electric. Mortgage companies were given preference over bailing out homeowners facing foreclosure and ‘negative equity’. Latinos were deported in record numbers, students allowed to accumulate more than $1 trillion in debt, job creation involved mostly low paid, contingent service work, pensions were allowed to collapse, senior citizens’ savings evaporate while investors enjoyed eight years of near zero interest rates, and progressive labor legislation was quickly shelved.

What started as a hope of a resurrected left populism quickly and progressively decayed into a comprehensive program that delivered 97% of all income gains to the wealthiest 1% households.

Voters chose a black president in 2008 because they wanted change. They didn’t care about his race. They didn’t get it. In 2016 they now voted again—for change. Those voters did not become racist in the past eight years, even though the candidate they just voted for indicated in many ways he himself was racist and misogynist, to name but a few of his apparent character faults. Those voters who in 2008 chose a ‘left populism’ that turned out to be false, chose in 2016 a ‘right populism’. But what they will get is not populism but another disappointment.

Like the Obama regime, the Trump regime will retreat to a neoliberal US elite regime. It will be a ‘Neoliberalism 2.0’. An evolved new form of Neoliberalism based on the continuation of pro-investor, pro-corporate, pro-wealthy elite economic policies—with an overlay of even more repressive social policies involving immigration, law and order, privatizations, cuts in social programs, more police repressions of ethnic communities, environmental retreat, limits on civil liberties, more insecurity and more fear. This is the new form of Neoliberalism, necessary to continue its economic dimensions by intensifying its forms of social repression and control.

We predict Trump will concede to elite neoliberal policies on Trade and Foreign Policy eventually, as he already is about to do with regard to elite policy preferences on taxation and deregulation. If he does not, elite interests are waiting in the wings, gathering the evidence and ammunition to attack Trump more directly if necessary, should he not comply. So long as he plays ball with them, they’ll just hold their ammunition at the ready. They will lock and load, and cock the hammer, taking aim and give a warning.

Trump will respond. He will come around to their demands. After all, he has more personally to even lose than did Obama. Faux left is replaced by faux right in American politics.

Jack Rasmus is the author of Systemic Fragility in the Global Economy, by Clarity Press, 2016, ‘Looting Greece: An Emerging New Financial Imperialism’, by Clarity Press, October 2016, and the forthcoming ‘Central Bankers at the End of Their Ropes’, Clarity Press, March 2017. He blogs at His website is His twitter handle is @drjackrasmus.

posted November 11, 2016
Why Trump Won–What’s Next?

US real estate billionaire, Donald Trump, is president-elect. In an age when 97% of all GDP-national income gains since 2010 have accrued to the wealthiest 1%–of which Trump is one—how could American voters come to elect Trump? How could they vote for a candidate that they simultaneously were giving a ‘negative rating’ of 60% to 80%? That fundamental question will ever haunt this election.

What the election shows is that American voters in electing Trump wanted ‘anything but the above’ Obama policies of the previous eight years, policies which were just extensions of the neoliberal regime established in the 1980s in the US since Reagan. And voters didn’t care about the political warts, past or present, of Trump. They just wanted something different. They wanted to ‘stick their thumb in the eye’ of the ruling political elites (of both parties).

The voters’ message was: ‘you, the political elite, have hurt and harmed us these past eight years. You have ignored us and left us behind while ensuring your wealthy friends recovered quickly and well from the 2009 crash. We have experienced great anxiety and insecurity. Now have a taste of that yourself!’

Trump’s campaign gaffs, his personal character, his missteps and outrageous ‘off the cuff’ statements, his lack of any government experience, only enhanced the view that he was not just another elite politician. His lack of TV ad spending, absence of a so-called ‘ground game’ organization to turn out the vote, his having lost all three TV debates according to pundits and the press, his lack of ‘field organization’ and a poorly run Republican Party convention—all that was irrelevant. What his win, in spite of all that conventional political wisdom of what it takes to win an election, reflects is that the equation of politics is changing in the US as the people, the ‘masses’ to use jargon of prior times, are entering the political arena as a political force.

And that fact is not just revealed in Trump’s election. It was evident in Britain’s recent ‘Brexit’ referendum to leave the European Union. It will next be reflected in Italy’s vote this coming December, in which political elite proposals for political reform to give them more power will also be rejected. It will reflect thereafter in the increasingly likely election of the far right ‘national front’ in French elections next year. And could further reflect in German elections thereafter, in which that country’s long standing and presumably untouchable political leader, Angela Merkel, may also be over-turned.

Obama’s Vanished Coalition

Trump’s election can be traced to the shift in key groups of voters who had supported Obama in 2008 and who gave Obama his ‘one more chance’ to do something in 2012, and who were deeply disappointed when he failed to do so since 2012. At the forefront of these groups was the white non-college educated working class, especially those concentrated in the great lakes industrial states in that geographic ‘arc’ from Pennsylvania to Wisconsin. This group not only turned from Democrats but turned to Trump—as they had in 1980 as the so-called ‘Reagan Democrats’—in response to another economic crisis of the 1970s during which they were also abandoned by the Democratic Party. Clinton 2016 thus lost key swing states of Pennsylvania, Wisconsin, Ohio, Iowa, and Michigan that helped put Obama ‘over the top’ a second time in those states.

Another important voter group that delivered for Obama in 2012 and did not for Clinton in 2016 in similar percentages were Latinos. They voted by a margin of 44% for Obama 2012, but only 36% for Clinton. Apparently, Trump insults of Latinos were less important than Obama deportation policies in recent years. Women voters were supposed to vote overwhelmingly for Clinton, but white women aged 45 and over did not. And 75 million ‘millennials, 34 and under, were driven away by Clinton and the Democratic Party’s treatment of the Sanders campaign during the primaries and by offering no solution to the hopeless scenario of insecure, low pay service jobs in exchange for record student debt. In short, white non-college educated workers abandoned the Democrats, while other groups simply ‘stayed home’ and did not vote in the numbers they previously had in 2012.

Somehow over recent years the Democrats, once a party purporting to represent workers, abandoned them to free trade, to low paid insecure service jobs, and to the wholesale privatization of retirement and healthcare systems in America. What was begun under Bill Clinton, expanded under George W. Bush, was allowed to accelerate under Obama. Democrat leaders instead came to envision themselves as the ‘corporate light’ party, agreeing to extending and expanding George Bush tax cuts for the rich and their corporations, free money interest rates, and focusing instead on educated suburbanites as their prime voter base.

The Origins of Trump’s Victory—Or, It’s Still the Economy Stupid!

The root of the Trump victory lies in the history of the past eight years and the deep failure of the Democratic Party—and its now lameduck president, Barack Obama—to ensure that Main St. America recovered from the economic crisis of 2007-09 and not just the wealthiest 1% and their corporations.

Hillary Clinton was not defeated so much by Trump, but by the failed performance of the Obama administration the past eight years, and her obvious inability to separate herself clearly from policies associated with the past eight years and to offer an alternative more radically different—as Trump clearly did.

We hear today from pundits and talking heads, who just yesterday were declaring that Hillary Clinton was a ‘shoe-in’, that the election has been a reaction of the ‘have nots’—i.e. those left behind. That’s true. The Trump victory is clearly another expression of the global wave of working class and non-elite reaction against the political elite, their parties, and the so-called neoliberal policy ‘Establishment’. But ‘left behind’ what?

The data show clearly that US corporate profits more than doubled after 2009. The US Dow stock market tripled in value. Bond market prices accelerated to record levels. And returns from derivatives and other forms of financial speculation, conveniently kept opaque from public scrutiny, no doubt surged to record levels as well.

The record US corporate profits alone were generously distributed to stock and bond shareholders—the 5% and especially 1% of wealthiest US households: since 2010 more than $5 trillion has been distributed in stock dividend payouts and stock buybacks alone in the US and in the past two years at a rate of more than $1 trillion a year. And to ensure that the corporations and wealthiest 1% got to keep most of that distributed income, corporate and investor taxes under Obama since 2009 were cut by more than $6 trillion—extending the Bush tax cuts and then some. And all that’s not counting other forms of capital incomes earned by the wealthiest 1%.
Augmenting this historic massive profits gains and income redistribution favoring the 1% and corporate America, US businesses have had access to trillions of dollars more in virtually free money, made possible by the US central bank’s policies of quantitative easing and zero bound interest rates. In each of the last three years corporations ‘borrowed’ $2 trillion a year by issuing corporate bonds. They then hoarded the cash instead of investing and creating jobs. The zero rates also accelerated real estate property prices benefitting the wealthiest. Since 2009, commercial real estate property has boomed in price, as has high end residential housing.

And what did the ‘have nots’ get since 2009? Stagnant wage gains. Low paid service jobs—often part time, temp, contract, and ‘gig’—in exchange for the higher paid jobs they lost. And tens of millions of young millennials with little hope of anything better for decades to come. The near zero rates for eight years engineered by the Federal Reserve, in turn meant 50 million retirees—grandpa and grandma— earned no interest income whatsoever for the past eight years and still don’t. Meanwhile, more pensions collapsed and medical costs rose. The ‘have nots’ got to deal instead with 13 million home foreclosures and trillions of dollars of home values ‘under water’ as they say, where the home value is less than the mortgage. And millions of homeowners still struggle with that. Mortgage companies and banks were quickly ‘bailed out’ by the Obama administration by 2010, but millions of small homeowners were ‘left behind’ and still are.

During the last eight years no bankers went to jail for their actions after 2009 and have steadily chipped away at any remnants of financial regulation. Big tech companies continued to hoard trillions of dollars of their cash overseas in subsidiaries to avoid paying taxes, while bringing hundreds of thousands of skilled tech workers every year into the US (legal immigration) on H1-B and L-1 visas to take prime jobs that should have gone to US workers. Big Pharmaceutical companies continued to price gouge, causing thousands to die as a consequence of unaffordable prescription drugs. Millions of college students accrued more than a trillion dollars in debt. Latino minorities were deported in record numbers, breaking up thousands of families; police militarization and violence repressed African-Americans in the inner cities; unchecked fracking poisoned water supplies and air; and the country’s infrastructure continued to rot from the inside out at an accelerating rate.

After previous administrations failed to privatize health care in the US, Obama succeeded with the Affordable Care Act—aka ‘Obamacare’. At a cost of nearly $1 trillion a year, covering less than 15 million of the former 50 million uninsured, Obamacare redistributed income to provide subsidies to those covered. In exchange the subsidized who bought Obamacare policies got super-high deductible, low coverage, health insurance. Health insurance companies in turn got tens of millions new customers guaranteed and paid for by taxpayers, and then continued to game the system for more profits. Obamacare became less a health care system reform act than a health insurance company subsidy act. It was the logical consequence of Obama’s withdrawal of the ‘public option’ and Democrats’ refusal to even allow debate on extending Medicare for all. It will be repealed very shortly.

Not least, the Obama administration championed an acceleration of free trade deals that promised to send even more jobs offshore, after having pledged to oppose free trade when he was first elected. Bilateral trade deals were signed by him, TPP and TTIP (Europe) pushed, and the worst effects of NAFTA and CAFTA were ignored. Obama not only became the greatest deporter of immigrants in US history, as H1-B legal immigration was expanded by several hundreds of thousands.

In foreign policy, the US continued its constant wars in the middle east that were never won or ended, as Obama promised. Hillary herself was the prime instigator of the Libyan fiasco, a proponent of more direct military intervention in Syria, and probably supported the coup in Ukraine behind the scenes. All that did not win her votes, especially among millennials. American voters have become sick and tired of the incessant war policies of the administration.

By not fundamentally breaking from this destructive economic and political legacy—the legacy of Obama and neoliberalism itself since 1980—Clinton all but ensured her fate and abandoned the field to Trump on the real issues. Trump didn’t even have to offer specifics of what he’d do different; just the impression that he somehow would reverse the policies quickly and in some way.

What’s Next: The Immediate Consequences of Trump’s Election

*Contrary to predictions of financial collapse, the Trump victory has already meant a big gain in stock markets, as corporations and investors prepare for what they believe will be further big tax cuts quickly. After more than $10 trillion in business-investor tax cuts since George W. Bush in 2003 to the present, trillions more are coming, and fast.

*The fate of the TPP is also now questionable—unless of course some way is arranged to push it through Congress rapidly in a lame duck session before Trump is sworn in as president in January, and providing he turns a blind eye to that (which is likely).

*The US Supreme Court will now become even more conservative and for decades to come, as Trump delivers on appointing ‘two, three’ Antonin Scalia-like nominees to the court. It is unlikely Democrats in the Senate can successfully oppose that until 2018.

*Racist elements at the grass roots will be greatly heartened by the Trump victory. As will militarized police forces. More clashes with immigrant and minority citizens on these issues will almost certainly grow in the period ahead.

*Obamacare will be repealed in toto in early 2017. Tens of millions will be left back where they were in 2008. Health care premiums and drug prices will surge still further.

*Dodd-Frank financial reform will also disappear, as weak as it was. Bankers will escalate their policies of financial speculation creating more financial instability. Consumer financial protections will be rolled back.

*Environmental policies will be rolled back. The EPA will be gutted and reduced to a token, largely underfunded function in the government. Recent global climate deal in Paris will now unravel.

*Infrastructure spending by government will be on the table, passed by a Republican Congress in exchange for further massive corporate tax cuts. Infrastructure spending will be insufficient and will not significantly boost US growth and jobs.

*An immigration bill will pass, but will prove harsh and harmful for immigrants from Latin America. H1-B and L-1 visas will expand, bringing more skilled foreign workers to the US to take high paying US jobs.

*In foreign policy areas, NATO policies of the US will shift. Europe will reconsider Russian sanctions. The recent Iran deal will get a ‘new look’. A US-Russia deal on Syria will be explored. More Asian countries, like the Philippines, will consider closer ties to China as US influence wanes in Asia.

Of course, all the above shifts and changes are based on the assumption that Trump’s campaign positions and promises will actually translate into domestic and foreign policy changes. That may not happen. It may have been all campaign rhetoric. Time will tell. Watch whether the US political and economic elites in the immediate weeks again can successfully maneuver Trump into appointing their kind to the key policy implementation roles in a Trump administration—as they did with Obama and other neoliberal presidents before. My guess is that they will, for the real power in US politics lies with the elites behind the political parties and their formal political institutions.

Trump made his billions by simply providing his name to properties and assets that he himself doesn’t not even own. We may soon see a political form of this celebrity economic strategy.

US Neoliberal policy may not change fundamentally in a Trump regime; just its appearance. Neoliberalism formed under Reagan-Clinton-Bush imploded in 2007-09. Obama has not been able to fundamentally restore it in its original form. A new form of Neoliberalism will now be attempted—a form even more harsh than before.

US voters may come to realize that their ‘rebellion against the political elite’ cannot be achieved through either wings of the single party of that elite—whether Republicans or Democrats. The rebellion will have to move outside the neoliberal political party structure. That may be the next major political lesson to be learned.

Jack Rasmus is the author of ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at His website is and twitter handle, @drjackrasmus.

posted October 31, 2016
How the Eurozone Benefits the Strongest at the Expense of the Weakest Economies


ATHENS — This has been another eventful year in Greece. Almost one year after it turned its back on the July 2015 referendum result which rejected further austerity, the Syriza-led government has pushed forward a program of even harsher austerity, spending cuts, and privatizations.

Following the British vote to proceed with “Brexit,” or a departure from the European Union, fears that Greece might follow suit led Greece’s lenders to demand even more austerity measures from a country already mired in an economic depression.

In this interview, Dr. Jack Rasmus, a professor of economics and politics at St. Mary’s College of California, analyzes these issues and the many challenges facing the Greek and European economies today.

The author of such books as “Looting Greece” and “Systemic Fragility in the Global Economy,” Dr. Rasmus shares his insights into the consequences of austerity for Greece and other peripheral European economies, and presents his proposed solutions for an end to the crisis and austerity.

MintPress News (MPN):

In September, Greek Prime Minister Alexis Tsipras gave his annual “state of the nation” address, where he boasted that the Greek economy has turned the corner, that unemployment is going down, that salaries will be increased, and that the country is returning to growth. Is this what Greece’s economic indicators actually show?

Protesters march to the Greek Parliament in Athens on Tuesday Nov. 6, 2012. Greece’s unions are holding their third general strike in six weeks to press dissenters in the country’s troubled coalition government not to back a major new austerity program that will doom Greeks to further hardship in a sixth year of recession. Two days of demonstrations are planned to start Tuesday, continuing until lawmakers vote late Wednesday on the bill to slash euro13.5 billion ($17.3 billion) from budget spending over two years.

Dr. Jack Rasmus (JR):

No, not quite. Greece’s debt is still the same as it was in 2011, roughly 180 percent of GDP. Unemployment has come down by only 3 to 4 percent, so instead of 27 percent, it’s about 23 to 24 percent. That’s depression-level unemployment. All the other indicators in the economy are flat or declining, so I don’t see anywhere that Greece is really “recovering,” and neither, really, is the entire eurozone economy. It’s been bouncing along the bottom.
As I said in my book “Systemic Fragility,” it’s a case of chronic stagnation. [The eurozone] might grow a little, 0.5 percent or 1 percent above GDP, mostly as a result of Germany’s growth, then it flattens out or goes below. Most of the periphery economies in Europe are stagnant or in a recession, as they have been for quite some time.

As far as raising wages, Greece cannot raise, at least in the public sector, any wages without the approval of the troika [Greece’s three major lenders: the European Commission, European Central Bank, and the International Monetary Fund]. It’s a real stretch to say that Greece is recovering. It’s kind of moving sideways, in the condition of still chronic economic depression.


One of the perceptions that has been prevalent in global public opinion with regard to the economic crisis in Greece is that the country has been “bailed out” with billions upon billions of euros in free money. Is this really the case, and where has the so-called “bailout” money to Greece actually gone?


Countries don’t get bailed out. Governments, banks, businesses, and sometimes, though not so frequently, households get bailed out. So the question is, who got bailed out here, in the debt restructuring deals of 2010, 2012, 2015, and this past spring? The banks got bailed out several times. Foreign investors and speculators in Greek bonds and other securities clearly got bailed out in 2012. If you look at where the money has gone, there’s $400 billion in debt in Greece still, that they have to pay off, with an economy that is less than half that size, so it’s impossible.

Where has all this money gone? Recent studies by the European School of Management and Technology documenting the 2010 and 2012 bailouts indicate that 95 percent of all the loans to “bail out” the Greek government, which then bailed out the Greek banks — 95 percent of that went back to Northern Europe, mostly to the German and Northern European banks that had loaned so much money to Greece. [Bailout funds also went] to the troika, particularly the European Commission, that then distributed it to the banking system and investors in turn. The EC is the big player here, and to some extent the European Central Bank, and to a minor extent now the International Monetary Fund. So, 95 percent of all the money loaned to Greece went right back to [Europe] and less than 5 percent of that went back into the Greek economy. Greece has been subsidizing the financial system elsewhere in Europe.


What do you believe needs to be done about the Greek debt?


You might ask what needs to be done about debt throughout the eurozone, because it’s not just Greece. Greece is perhaps the most serious case, but other places in the periphery of Europe are still heavily indebted. You cannot sustain, with austerity measures designed to pay the interest and principal on debt, a $400-plus billion debt based on an economy that’s less than $200 billion. Even the IMF has come to that conclusion and is maneuvering with the other troika members on that particular point.

Is [the debt] legitimate? Well, you have to understand the origins of this debt. It was originally private sector debt that was created as a result of the formation of the eurozone in 1999, the ECB as part of that creation, and other elements of the eurozone agreements, particularly the Lisbon Strategy that Germany adopted. Germany and other Northern European businesses and bankers pumped money and capital into the periphery, including Greece, from 2005 onward. Germany had a strong competitive advantage in exports, so a lot of the money and capital was pumped into the periphery, including Greece, in order to purchase German and other exports. So the money went in and circulated around, leaving a pile of private sector debt in Greece, Italy, and other places.

Then we had the crash of 2008-2009 and the debt could not be repaid, and the troika stepped in to [offer] the governments of Greece and other countries money in order to continue to bail out the private sector and enable the repayment of the private debt. So it starts out as private debt, because of this great imbalance in exports within the eurozone, and then that gets converted to government debt, and then the big crash of 2008-2009 adds even more debt, and then you have the recession of 2011-2013 in the eurozone and the 2012 bailout, which piled on more debt in order to pay the old debt, and then in 2015 the same thing. So the troika’s piling more debt on Greece in order for Greece to pay the previous debt, and that’s totally unsustainable. They’re going to have to expunge some of that debt.

Of course, the Germans, Wolfgang Schauble [the German finance minister] and the coalition in the north, does not want to allow that. And they don’t really want to change the eurozone, because the eurozone, while very imbalanced for the periphery, has benefited Germany significantly. [The Germans] dominate the finance ministers’ council in the EC and they dominate the ECB, and they’re just keeping the situation the way it is because it’s profitable for them.

MPN: Why must Greek banks be nationalized, in your view?


Look at the debt negotiations of 2010, 2012, and 2015. What happened was the ECB, which pretty much controls the Greek central bank — the ECB is just a council of central banks dominated by the Bundesbank [the German central bank] and its allies, so they have control — and what you saw in the negotiations is that in 2015, the ECB put the screws to the Greek economy, and Syriza collapsed and agreed each time the screws were tightened, bringing the economy to a halt. They couldn’t deal with the squeeze on the economy by the ECB. This brought the economy to a halt, squeezing it and of course not releasing loans that [the troika] had agreed to provide Greece under previous agreements. There was an economic squeeze that Syriza did not have a strategy to deal with, and eventually it capitulated.

You’ve got to nationalize, make the Greek central bank and the banking systems independent of the ECB. Gain control over your economy once again, and that is one of several key steps to prevent the squeeze every time you attempt to renegotiate the debt or restructure the debt. Without an independent, Greek, people-controlled banking system, the eurozone and the troika will squeeze and bring Greece to its knees every time. We’ve seen that three times. You’ve got to nationalize the banking system, including the central bank, or if you want to just leave the central bank as part of the ECB structure, go ahead, but create an independent central bank authority elsewhere in the Greek government.

In the U.S. during the Great Depression, the U.S. central bank had screwed up badly, and [President Franklin Delano] Roosevelt took over and had his Treasury Department take over and run the economy. Greece would have to set up a parallel central bank in its finance sector, and isolate and bypass the influence of the ECB through the Greek central bank. You would have to create a parallel currency as part of this and impose serious controls on bank withdrawals and capital flows outside the country, which Syriza did not really do, because the ECB and the troika opposed it. When you have all the capital, bank withdrawals and capital flight is another way of squeezing the country economically.


The current government in Greece has been continuing a policy of massive privatizations of Greek public assets, with profitable airports and harbors having been privatized in the past year, in addition to the recent selloff of the Greek national railroad for a total of €45 million ($49 million). What are the short- and long-term impacts of the privatization of such public assets?


The short-term is that when you privatize them, under the aegis of the troika, if you sell below market prices, which a lot of these assets are being sold at, that’s profit on the sale for the investors who are buying up these assets. But once the assets are in private hands, where does the revenue go? Does it go back into Greece or does it go back into the pockets of the investors and the corporations and the banks outside Greece that are buying it up? Well, it goes out. It’s a form of capital flight. Money that is needed in Greece flows out of Greece.

This is a new form of financial imperialism, wealth extraction in other words, that is being structured and managed on a state-to-state basis. It’s not 19th century British imperialism where they set up a factory in India, paid them low wages, and brought the textiles back to London to re-sell at a higher price. It’s not that kind of production imperialism. This is financial imperialism imposed on Greece, and it’s a new form that’s emerging everywhere, where you indebt the country and then you force the country to engage in austerity in order to pay the principal and interest on the debt, and you extract the income from the country. Privatizations are another form of that.

You privatize public goods, you get them at fire-sale prices, and then the income flows from those assets flow back to the coffers of the private companies or the banks, outside of Greece.

The other consequence is when you privatize, they come in and they cut costs, which means they lay off people in mass numbers, they put a hold on wages, they get rid of benefits, and they do everything else to maximize their revenue.
Finally, longer term, it means that Greece has less control over its own economy if it can’t control its infrastructure and everything is owned by foreigners. Then you can’t influence it as much, and if you’re part of the eurozone, you’re legally prohibited from what you can do to make sure that these foreign-owned infrastructure companies are behaving in terms of the benefit for the public sector, for the rest of Greece.


You have argued in your book, “Systemic Fragility in the Global Economy,” that there are nine major trends which account for the economic troubles that are seen on a global scale. What are some of these trends?


Everywhere, and particularly since 2008, we see central banks and monetary policy to be ascendant, and that means creating money, pumping it into the economy to bail out the financial systems, the financial institutions, the banks and the shadow banks, meaning speculators, hedge funds, private equity firms, asset management companies, and so forth. We’ve seen bailouts of tens of trillions of dollars since 2008. All of that liquidity injection into the economy has driven interest rates down to zero or even, in Europe and Japan and elsewhere, negative rates, and that fuels debt. With rates that cheap, corporations and businesses float new corporate bonds, and they use the money not to invest necessarily, they use it to buy back the stock and drive up the stock prices and pay out dividends, or they sit on it, they hoard it, or they send it to emerging markets. That’s a problem everywhere, and that’s the result of massive liquidity injections, which have really been escalating since the 1980s, when controls on international capital flows were eliminated everywhere.

After the 1970s, when the Bretton Woods system collapsed and central banks took over, the combination of those has led to the financialization of the global economy in the 21st century, where profits are far greater for investing and speculating in financial securities than they are in investing in real assets and real things that create real jobs and real income and real consumption. We’re becoming dependent on debt more and more. The economy is increasingly credit- and debt-driven, and that’s the result of this massive liquidity injection, and it also leads to a shift from real asset investment — investing in real things that create jobs that people need — toward financial asset investment. That means that real investment collapses over time and productivity collapses over time as well, and we see that happening everywhere.

That’s a major point that I argued about in my book, “Systemic Fragility,” this financialization of the global economy based on liquidity and debt and squeezing out. It’s diverting money and capital from real investment into financial speculation. What’s going on in Greece is a concrete expression of this, the reliance on financial means and financial manipulation. The periphery in the eurozone is at a great disadvantage to Germany and others, and they’re being manipulated financially. All the payments on interest and the debt flow back to the north. This is all flowing through the EC to the private sector, and it’s a nice constant money capital flow from interest payments and privatization and speculation on government bonds and securities and stocks in these countries as the volatility occurs.

It’s a reflection, in Greece, of what’s happening on a broader scale elsewhere in the global economy, and that’s why we haven’t seen much of a recovery in the global economy. Global trade is stagnant and real investment everywhere is drifting toward zero, productivity is negative almost everywhere, even in the U.S., and we’re seeing growth rates of barely 1 percent, 1.5 percent, at best, when it should be double that. We see these growing, non-performing bank loans, almost $2 trillion in Europe, the worst in Italy with about $400 billion. We see the same thing in Japan and in China. We’re becoming more systemically fragile financially because of this shift to financial speculation.


What is your outlook for the eurozone economy and the difficulties that it is currently facing?


The European banking system has never fully recovered from the 2008-2009 crash. The ECB is pumping money into the banking system in various ways, long-term refinancing options and all the bailout funds and qualitative easing and negative interest rates and so forth. They’re desperately pumping money into the banking system, but the banks aren’t really lending, at least to those businesses that would reinvest in real assets to create jobs. It’s far more profitable to make money now. Investors make more money from financial speculation than they do from investing long-term and expecting to get a return over 10 to 20 years for investment in a real company that creates real things.
We can see the strains now with the non-performing loans, in particular in Italy. Of course, we know the situation with the non-performing bank loans in Greece. Portugal is in bad shape as well in terms of non-performing loans, and now we see even institutions like [Germany’s] Deutsche Bank and others beginning to feel this strain, and the further impact on the European banking system of the “Brexit” [the departure of Great Britain from the European Union].

The problem is that the private banks are either hoarding the cash, they won’t invest in real growth, or they’re sending their money offshore to emerging markets, or they’re using it, as in the U.S., to buy back stock and pay out dividends and loaning money to companies to do just that. The global economy has changed dramatically in ways that make it much more fragile than ever before. A lot of debt has been building up everywhere: Over $50 trillion in additional debt has occurred since 2009, and when the next recession comes, how are they going to pay that debt?

When times are stable or growing, you can add debt without a great crisis emerging, but when you have a recession or a downturn that’s significant, where are you going to get the money capital to pay the principal and interest on the debt? Then you start seeing defaults and you start seeing financial asset price collapses going on, and now you’re back in 2008-2009. That’s the picture of the global economy.


What would be the steps for Greece to follow, in your view, in order to escape the spiral of economic depression and austerity?


Syriza made it clear, when it came into power, that it was not in favor of “Grexit” [a Greek departure from the eurozone], and it has always maintained that position. An unprepared, “we’re leaving the eurozone and the euro” kind of decision would cause a collapse of values, particularly among those who have investments in some savings in Greece. To some extent, Syriza was caught between a rock and a hard place here. They couldn’t or didn’t want to advocate an exit, and at least those who had investments didn’t want it because of the potential effect on their investments. The broader Greek populace thinks, still, that to be European you have to be in the eurozone. That’s a big mistake.
I think what Greece and Syriza should have done is to create a parallel currency and to take over its banking system. In other words, make the banking system truly independent, including the Greek central bank, and if that was not possible, bypass the Greek central bank and set up a central banking function in the finance ministry, as the U.S. has done at different times. Create a parallel currency, and policies and programs to get people to convert their euros into the parallel currency. Maybe declare that henceforth all taxes to the Greek government will be paid with the parallel currency, and that means that people would then trade in their euros for the parallel currency to pay their taxes.
Then tell the troika [the EC, the ECB, and the IMF — collectively, Greece’s lenders] that we’re going to pay you in your euros, but if we run out of euros here as a result of the conversion, well, tough luck, we don’t have a way of paying you, let’s negotiate a final deal where you expunge some of it and we pay you off and we go our separate ways. Of course, you would have to create significant capital flow controls, which has always been a problem every time there’s been a crisis; the money flows out of Greece. Take the economy out of the control of the troika without a formal exit.

That could have been done, but for some reason Syriza and its finance advisers either didn’t want to do that or didn’t know how to do that.


Arguments that have been heard against a parallel currency include the claim that the existence of two currencies would create a situation where there would be “haves” and “have nots” — between those who would hold a stronger, hard currency, compared to those holding a weaker, devalued currency. How do you respond to this?


There are policies and approaches you can take that entice and require people to convert their euros into the new currency. That would raise the demand and therefore the value, the price of the new currency. If you just had the currency and you didn’t have this forced trade-in, then of course you would have “haves” and “have nots,” the new currency would collapse, and pretty soon no one would want to use it. But, for example, saying that taxes could only be paid with the new currency, would force people who had corporations and businesses and so forth to purchase the new currency with the euro. It would undermine the value of the euro in Greece and it would raise the value of the new currency in Greece as well. That might set off a parallel elsewhere in the eurozone with other countries thinking the same thing, which would undermine the value of the euro and put the squeeze on the troika for once. Greece never put the squeeze on the troika, it was just the opposite in all of these negotiations that occurred, they never really hurt the troika in negotiations, and that’s the only way you prevail in negotiations. You’ve got to make it unpleasant for the opposition. Syriza never did that, they played along and made concession after concession.

Syriza thought that their example would strike a spark elsewhere in Europe of other social democratic forces and governments. They thought that they would get the rest of the social democracies behind them and together they would reform the eurozone. That was a fiction, a fantasy thought on the part of Alexis Tsipras and others, but that was the core of their whole strategy. European social democracy is a dying force, and that’s why you see the growth on the fringes, both to the right and the left.

Tsipras and [former Greek finance minister] Yanis Varoufakis’ problem was that they thought they could get all these elements behind them and that together they would have enough weight to force Schauble and other finance ministers to make concessions. Well, Schauble and the other ministers, the “German faction,” as I call it, within the finance ministers’ council in the EC, remained dominant. At every step along the way, whenever Syriza and its few allies tried to make a compromise where some concessions were made to them, the German faction squelched it. We saw that, for example, at the very end, when [Greece held] the referendum in July 2015. Greece held the vote, and the vote said “go back and negotiate a better deal for us,” and what did Tsipras do? He totally caved in to the Schauble faction, and then the Schauble faction said, “The offer we made last week is now off the table, you’re going to have to accept an even worse one.” So they put the screws to Syriza, and Syriza looked to its allies in the EC, and they totally caved in as well. Things just got worse and worse until you had the final [austerity] agreement on August 20, 2015.

It was a step-by-step retreat from [Syriza’s election in] January 2015, because Syriza had the wrong strategy and was not engaged in certain necessary tactics. Of course, the troika itself had a lot of cards to play. It would have been an uphill fight for Syriza. The time where they might have been able to strike some concessions from the troika was 2012, but New Democracy [the center-right party in power at the time in Greece] was totally in the pocket of the troika, so that was impossible.

[This past spring], the IMF and the troika were worried about “Brexit” and what impact that might have on renewing “Grexit.” So they put the screws to Greece again, raised the debt even more, austerity even more, and I think another round of that is coming, because the IMF wants out of the troika deal. We’ll see what happens at the IMF meeting, but they haven’t endorsed even the 2015 agreement because they know it’s unsustainable. I think the IMF is maneuvering to have the EC to buy its portion of the debt, and once that happens, the EC will demand even more austerity from Greece.


In the event that a parallel currency is implemented and steps are taken to maintain or strengthen its value, could that be a prelude to a switch to a national, domestic currency?


Yes. At some point, one currency will become dominant. You can’t have two equal currencies like that. Another advantage of the new currency is that it will start out at less value than the euro, and that will be used as the trading currency. That will stimulate Greek exports to elsewhere, outside the eurozone.
Part of the problem is that the periphery in Europe is so dependent on exports and imports to Germany and the north, that it can’t really engage in its own independent export strategy without cutting wages. Throughout Europe, you have what’s called “internal devaluation,” when you are stuck with a currency and someone else’s central bank, the ECB and the euro. You can’t really engage in independent monetary policy to stimulate your economy and you can’t engage in lowering your currency in order to gain some advantage in exports. You’re stuck, and only the most powerful country that’s most efficient and has the lowest costs is able to take advantage of global exports, and that’s Germany. The weaker economies of the periphery will always be at a disadvantage to Germany when it comes to trying to push their exports anywhere else outside the eurozone.

That’s the lesson. The lesson is that you’ve got a 1999 agreement in which you have this quasi-central bank, the ECB, and you have [the euro], and that arrangement significantly benefits the most efficient, low-cost producer, which is Germany, at the expense of the periphery. Until you have a true central bank and fiscal union to some extent, that will pump the money into the periphery to help it grow when it doesn’t, you will always have the situation you have in Europe right now.

Compare that to the U.S., where there’s a fiscal union, so that if certain states have economic problems … the federal government can pump money into those specific locations. If you don’t have a true federal government and fiscal union, you can’t do that, and if your central bank is dominated by the largest economy — Germany — even the monetary policy has no effect. And if it’s a single currency, it’s to the advantage of the stronger economy at the disadvantage of the weaker.

The eurozone economy is structured to emphasize the growth of the strongest economies at the expense of the weaker, and that’s not going to change. It’s built into the eurozone. You cannot create a currency union and a customs union without a true banking union and fiscal union. More and more countries in the eurozone are beginning to come to that conclusion, but it was foreordained. Economists knew this from the beginning, and that’s the tragedy. Greece has tied its tail to the eurozone, dominated by Germany, and it can never get out of this situation as long as Germany dominates the institutions, which it does, because the whole arrangement is great for Germany.


Tell us about your most recent book, “Looting Greece.”


It’s really a case study of the consequences of financialization and globalization and integration. I argue that there is this phenomenon of the smaller economies being tied into the larger economies through free trade agreements, which lead to currency unions, which lead to banking unions, and then you’ve got a situation like Greece and the euro periphery and the problems associated with that.

The book also takes a historical look at the origins of the Greek debt, that starts in 1999 with the [creation of the] eurozone, the adoption of the euro by Greece in 2002 and the consequences of that, how the debt developed, first in the private sector because of German export domination and then conversion of the private debt in 2008-2009 to the public debt, and then the collapse of 2008-2009, which added to the government debt. Then you had the 2012 agreement where the private sector was bailed out, and that added more debt, and then 2015 and so forth. All this is described in detail in the early chapters, and then most of the book is a step-by-step look at the negotiations between Syriza and the troika, from [Syriza’s January 2015 election] through the spring of 2016, and what were the strategic and tactical errors of Syriza and the strategic and tactical moves by the troika which enabled it to prevail.

At the end, [the book discusses] how this is a form of a new emerging financial and wealth extraction from smaller economies by the larger economies, because of the globalization and integration arrangement that exists, the emergence of financial extraction and financial exploitation, and how central banks are feeding that all. This will lead to my next book, which is about global central banks and the problems they’ve created as we move to another crisis, which I think is coming in the next five years.

posted October 21, 2016
The 3rd US Presidential Debate–What’s Coming in 2017

The 3rd US presidential debate held October 19, 2016 between Donald Trump and Hillary Clinton was perhaps the most critically important of the three presidential debates—not so much for what was said, or even how it was said, but for what it portends for US policy in the post-election period regardless which candidate is elected in November.

The 3rd debate began with a reasonably rational discussion covering topics of Supreme Court appointments, 2nd amendment gun rights, abortion and then immigration—each subject revealing the deep differences in positions between the candidates. But then, as in the 1st and 2nd debates, it quickly exploded.

As the debate addressed the topic of immigration, Trump noted that Barack Obama was the biggest deporter of undocumented Latinos in US history—a fact which Clinton has consistently avoided, he charged. Trump then referred to the recent Wikileaks revelations, where Clinton declared she was in favor of ‘open borders’ throughout the western hemisphere and Trump suggested her ‘open borders’ remark referred not only to more free trade but also more cross border labor immigration as well.

The Wikileaks revelations have been a consistent hot ‘third rail’ in the US election and the debates. The revelations have served as a multi-edged sword against Clinton. By revealing her ‘open borders’ remark they contradict Clinton claims that she opposes the Trans Pacific Partnership trade treaty or free trade, while simultaneously suggesting she would accept more immigration to the US as part of a broad hemisphere free trade deal. Wikileaks further touches another Clinton political ‘raw nerve’: her emails cover-up. And they also reveal Clinton’s cynical ‘dual communications strategy’, in which she consciously says one thing to bankers and big business and another to the US public. The Wikileaks revelations are thus a kind of strategic lynchpin for the Trump campaign in the election, raising multiple issues on which Clinton is vulnerable.

It was not surprising therefore that, almost on cue when Wikileaks was first raised by Trump in the 3rd debate, Clinton angrily went on the offensive and diverted the discussion from the revelations. Her offense-defense was to redirect the debate to an attack on Wikileaks itself. From Wikileaks suggesting free trade, open immigration, email cover ups, and double talking to bankers and voters discussion was diverted to Wikileaks as Russian hacking of senior Democrat party leaders, Wikileaks as Russian vehicle to disrupt US elections, and from there to Russian aggression in Syria, demonizing Putin as war criminal, and then demonizing Trump by association as a friend of Putin.

In redefining the Wikileaks debate, Clinton’s words and her visual countenance response revealed a deep anger. How dare any country interfere with US elections. How ironic, given the US long and consistent interference in other countries’ elections. Clinton’s comments reflected the US elite’s growing frustration with Russia’s recent military offensive and gains in Syria. Clinton’s counter-attack on Wikileaks then set up the segway to Putin as the cause of continuing war in Syria, Putin as Saddam Hussein incarnate, Putin as the source of subversion of US democracy, and, then in turn, to Trump as the buddy of Putin and therefore, by association, all the above as well.

Wikileaks was clearly the nexus point of the 3rd debate. Clinton declared Wikileaks “the most important issue tonight”, charging Trump with “willing to spout the Putin line”, declaring “you continue to get help from him” (Putin) and that “you are his favorite in this race”. Trump countered with the charge Putin has outsmarted her and Obama at every foreign policy turn and that’s why she, Clinton, is trying to attack him by a desperate attempt to associate him with Putin.

The even more disturbing quote from Clinton in the exchange, however, was her repeated call, first raised in the 2nd debate, to establish ‘no fly zones’ in Syria. When the debate moderator noted that US generals have said such zones would likely lead to war with Russia, Clinton suggested ‘no fly’ would correspond to ‘safe zones’ on the ground. But ‘no fly’ was necessary to confront Putin and Russia in Syria. “We have to up our game” there, she concluded.

The debates reveal that, if elected, Clinton and the US war faction are likely to engage in new military adventures in the middle east, in particular in Syria. Or perhaps try to counter Russia with a more assertive military challenge in the Baltics, Eastern Europe or the Ukraine as a bargaining chip with Russia in Syria. The 2nd and 3rd presidential debates indirectly reveal something is afoot in that regard, no matter what the outcome of the election in November, but especially if Clinton is elected.

The debates also reveal a new offensive is brewing, indeed already underway, to shut down Wikileaks and to further restrict free speech and civil liberties. Already, Wikileaks’ internet connection at the Ecuadoran embassy in London has been cut. Concurrently, in recent days British banks have indicated they will no longer service the accounts Russia TV in the UK. This is a ‘shot across the bow’ to Russia media as well. A similar move is likely in the US for Russia TV soon after the elections. US government and US banks have initiated similar financial disruption tactics against Latin American progressive media, as the US renewed neoliberal offensive in Latin American continues to deepen. And should Trump lose the US election, it is likely his voice too will be muffled, if not ‘silenced’, in US media.
That muffling is especially true should Trump refuse to abide by the election outcome in the US. Another Trump ‘verbal bombshell’ in the 3rd debate was his refusal to say whether he would accept the outcome of the US election if he were defeated. Before the debate, Trump also continually raised the charge the election was being ‘rigged’.

That view of media bias and election manipulation resonates with much of the US voting electorate, especially his base of at least 40% of hard core pro-Trump voters. The charge of ‘rigging’ and potential to refuse to accept the election results may prove a ‘game changer’ in US elections. It reflects the deep distrust by broad segments of the US populace of the political elites in the US and their two parties. That distrust is not going away after the election, but will take new forms of protest in 2017 and beyond.

For there is clearly a rebellion underway against the ‘political class’ in the US. That rebellion is not yet reflected in independent political organization and opposition. It is still being expressed through and within the two wings of the Corporate Party of America—Republicans and Democrats. But that may break down, should Trump lose and the US economy continue to falter in 2017. What the debates reflect is growing disenchantment with the two parties’ organizational cocoon. A ‘rebellion within’ those two wings could evolve post-November easily and quickly to a challenge ‘from outside’.

Should he lose, Trump will almost certainly launch a new political party. A Trump new party initiative could also stimulate something similar on the left in the US. Bernie Sanders’ millennials are still clearly not in the Clinton corner, despite their erstwhile leader having thrown in with Clinton. The election may come down to whether, in the 8-9 swing states, Trump can turn out more non-college educated white workers than Clinton can turn out educated urban professionals, women, suburbanites, and Latino-African Americans.
Neither candidate has the millennial vote, now the largest population segment. Millennials may in the end vote for ‘none of the above’. Clinton is trailing well behind Obama for the millennials. Trump too is losing their support, at least among the better educated. Polls show only 54% of the under-35 years old group is currently at all interested in the election. And that will not soon change.

Third party candidates, Jill Stein of the Green Party and Gary Johnson of the Libertarians, are polling 22% of likely voters aged 18 to 29. According to a Harvard University survey this past summer, a third of Americans aged 18-29 support Socialism, while not even half back Capitalism. For them, the economy is the main issue and that is going to get worse in 2017 and beyond, not better, regardless who wins in November.

In summary, apart from all the personal mudslinging and the occasional, tangential references to real issues in the debates, what the 3rd—and indeed all three debates—reveal beneath the surface is in 2017 and beyond what’s in store is more military adventures, more limits on civil liberties, a growing loss of legitimacy by the US political elite and their parties in broad segments of the US population, deeper splits and more internecine conflict within the political class and each of their two parties, a growing potential for new forms of independent politics, and more instability within the US political system in general.

Jack Rasmus is the author of ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at His website is and twitter handle, @drjackrasmus.

posted October 21, 2016
The 2nd US Presidential Debate

The two most disliked candidates in modern U.S. election history did not disappoint U.S. voters’ low expectations of their performance in the second presidential debate held October 9 in St. Louis.

Both candidates spent most of their time attacking each other as either ‘morally unfit’ to be president, chronically prone to ‘bad judgement’, and habitual liars. Issues of real importance to voters were again, as in the first debate, altogether absent or, at best, were briefly and superficially addressed.

The continued mudslinging was fueled by the release of videos this past week, taken a decade or more ago, showing Trump bragging about his ability to sexually dominate women and making other generally extreme misogynist comments.

The videos set off a firestorm among the Republican elite over the week. Some began calling for Trump to drop from the race. Others talked of ‘pulling the plug’ on Republican Party financial assistance to Trump’s campaign. How Trump performed in this second debate would no doubt determine whether such talk translated into action, as the Republican camp showed signs of splitting down the middle even further and the party’s elite abandoning their candidate.

This potential ‘hard split’ among Republicans in the United States, the party elite vs. a majority of its members, is not unlike similar party developments in Europe, where the British Labour party elites have been attacking their public leader, Jeremy Corbin, for abandoning their neoliberal policy regime; or in Spain where the Socialist Party leader was recently dumped; or in France where presidential Holland will soon be. The economic recovery since 2009 that has benefited only the economic elites—in the United States 95 percent of all the net income gains since 2009 have accrued to the wealthiest 1 percent households—has been translating into a grass roots disaffection from political parties. As one of the press commentators put it after the second U.S. debate, “This election is about the American people vs. the Political Class.” But it’s not just an American phenomenon. The trend is becoming generalized across many of the advanced economies.

Trump fielded the damning video evidence of his misogynist bragging by saying it was only ‘locker room’ talk. Only words. He then went on the offensive against Hillary Clinton, saying that while his were only ‘words’, Hillary’s husband, past president Bill Clinton, engaged in actual sexual abuse and was impeached for it. The Trump camp had brought three women to the debate who were involved in Bill Clinton’s impeachment charges or were subjects of Clinton’s sexual misconduct. Trump further accused Hillary of laughing when, as a prosecuting attorney, she got her client saved from jail time in a rape case involving a 12 year old. Both candidates thus showed they would go to whatever lengths to dredge up decades old evidence to prove their opponent as ‘morally unfit’.

An interesting, related detail to the ‘morality telenovela in real time’ that has become the U.S. presidential election, is that the videos of Trump were released more or less simultaneous with the Wikileaks’ release last week showing Clinton’s plans to run her campaign with one set of proposals and promises communicated to private big banker-corporate donors, while planning to say the opposite to voters. When challenged by Trump to explain the leak and her implied ‘two-faced’ approach to U.S. voters, Hillary hid behind the example of Abraham Lincoln, saying he did the same and the practice was therefore legitimate.

This ascerbic exchange was preceded by Hillary’s reference to Russia and its president, Vladimir Putin, accusing them of hacking the Democratic Party and the U.S. election in order to aid Trump. The U.S. media in recent weeks has picked up this idea, for which there is no evidence to date, and has been promoting it widely. It is yet another dimension of the growing shift in U.S. elite toward confronting Russia. Hillary’s implicit suggestion in the debate was the Wikileaks release reflects Putin-Russian interference in the US election to aid Trump. The timing of the release of the Trump videos and the Wikileaks material raises the question whether in coming weeks voters can expect more of the same—i.e. more damaging Trump videos being released, perhaps not coincidentally, as more promised Wikileaks releases appear damning Clinton.

The second debate revealed yet another, even more ominous anti-Russia theme worth noting. In a reply to a question about what would the candidates do about Syria and Aleppo, Hillary declared the Russian air force in Syria is determined to destroy Aleppo. Russia has ‘gone all in’ in terms of ambition and aggressiveness in Syria, she added. Russia’s war crimes should therefore be investigated. Furthermore, a ‘no fly zone’ should be imposed in Syria. What she didn’t explain is if Russian planes ignored the U.S. ‘no fly zone’, would the United States try to shoot them down? And what if U.S. planes were shot down, as Russians retaliated? Clinton’s exchange revealed the U.S. ‘war hawk’ faction’s increasingly desperation concerning the Syria conflict, in which the United States has been increasingly sidelined and Russia has become more influential.

The debate moderator, Martha Radditz, then asked Trump what he would do in Syria, since Trump’s vice-presidential running mate, Pence, had just days before declared, agreeing with Clinton, “the U.S. should be prepared to strike military targets of the Assad regime”, presumably including airfields with Russian planes. Trump replied “I disagree”, and that the focus should be on dealing with ISIS. Trump’s disassociating from his VP, Hillary, and the war hawk faction created some stir and commentary in the post-debate discussion by pundits and talking heads.

Another notable exchange during the debate occurred when Trump attacked Clinton for deleting her emails after receiving a subpoena, when Secretary of State. He then dropped yet another debate bombshell by saying when he’s president he would appoint a special prosecutor to investigate Hillary’s action. When she rejected the notion as an example of Trump’s ‘imperial presidency’ view, Trump retorted it didn’t matter “because you’ll be in jail”.

Hillary clearly scored points in the debate, however, when the discussion turned, on occasion briefly, to actual policy. Trump noted costs of Obamacare had risen 68 percent, and that voters were drowning under rising costs of premiums, deductibles and copays. He advocated repeal and a total restart. Clinton, however, argued to fix it, and keep the good elements, whereas Trump would return health care to insurance and pharmaceutical companies’ price gouging and coverage denial, as in the past.

Clinton scored points in the exchange on taxes as well, noting that Trump’s plan to reduce taxes from 35 percent to 15 percent would benefit the rich twice as much as had George W. Bush’s tax cuts. She proposed no tax hikes on anyone earning less than US$250,000 a year, with taxation raised only on the wealthy.

The second presidential debate changed little in terms of voter preference, according to post debate polls. The unfavorability ratings for both candidates were virtually unchanged: Clinton with 45 percent unfavorable rating before the debate and 44 percent after; Trump with 64 percent unfavorable both before and after. In national polls Clinton enjoyed a wide margin of support among women before the debate, which has grown further after events of the past week. This margin may prove significant in the election outcome, providing it carries over to the 8 or 9 swing states where the election will be determined by voter turnout–perhaps even before November since 30 percent vote by mail before and that voting has already begun.

In the second debate, Trump’s strategy was clearly to shore up his conservative base by returning to the extreme anti-Hillary rhetoric that got him the nomination. Themes of Clinton as ‘liar’, ‘devil’, and ‘put her in jail’, were resurrected. He may have restored his base after the events of the past week, and by performing relatively better in the second debate (a very low bar), but that may not prove sufficient to win in November. Clinton has used the events of the past week and the debate to deepen her support among women voters. However, an expected ‘knock out’ debate, where Trump was decisively defeated, did not happen.

But debates and national polls are almost irrelevant at this stage. The outcome will be determined in the eight to nine swing states. With 87 percent of voters decided and neither candidate able to ‘move the needle’ in debates, it’s about whether Trump turns out more of his base in the swings states and whether Hillary can change the minds of millennials, Latinos, and others to turn out to support her after they have felt betrayed by Obama’s second term and its failure to deliver on promises made in 2012.

In the meantime, audiences can just ‘enjoy’ (and weep) the morality telenovela that is the current U.S. presidential election.
Jack Rasmus is the author of the just-released book, “Looting Greece: A New Financial Imperialism Emerges,” and the previous, “Systemic Fragility in the Global Economy.", both published by Clarity Press, 2016. He blogs at

posted October 7, 2016
Two Articles on the US Election-’The First Presidential Debate Aftermath’ & ‘Hillary’s Ghosts’

ARTICLE #1: ‘HILLARY’S GHOSTS’ (September 26)

On the eve of the first presidential debate, concern is growing among Democratic candidate Hillary Clinton supporters that her previous lead in the polls is narrowing and Republican rival Donald Trump is nearly “neck and neck” in voter support in key “swing states.”
In what are two of the three ‘bellweather’ states—Ohio and Florida (the other is Pennsylvania)—Trump appears ahead going into the first televised debate on Sept. 26. As of last week’s mid-September polling, he leads in Florida by 43.7 percent to 42.8 percent for Clinton. Other polls show him with a similar modest lead in Ohio. Should Trump win Florida and Ohio, it is highly likely he’d get the 270 electoral college votes necessary to win; and should he take Pennsylvania as well, it’s virtually assured he would.

U.S. presidential elections are not determined by the popular vote. They never have been. In the archaic and basically undemocratic U.S. electoral system—dominated by the highly conservative institution called the electoral college—all that matters this year is who wins the electoral college votes in the 8 or 9 “swing states.”

The remaining states are safely in either the Clinton or the Trump camp. The swing states, sometimes called the “battleground” states, are: Ohio, Florida, Pennsylvania, Michigan, Iowa, Wisconsin, Virginia, Colorado, and maybe North Carolina this year. The largest in terms of potential electoral college votes are Florida and Ohio. Pennsylvania is also significant. Whoever wins Florida, Ohio and Pennsylvania—the bellwether states—will almost assuredly carry the other five as well; and whoever wins most of the swing states, wins the election.

The outcome in the swing states will be determined in turn by which candidate can mobilize its constituencies and get out the vote. And that’s where “Clinton’s Ghosts” will play an important role, that is, reducing her ability to “turn out her vote” more than Trump is able to mobilize his.

Trump’s key constituencies are middle-aged and older whites in general, high school or less-educated white workers, religious conservatives, wealthy business types and investors, and the Tea party, radical and religious right. The Democrats’ constituencies are African Americans, Latinos, immigrants, the college-educated, urban women, trade unions in public employment and what’s left of the industrial working class, students and millennial youth under 30. This is the “Obama Coalition” created in 2008 that was barely held together in 2012, and is now in the process of fragmenting in 2016. The consequences of that break up may be determinative in the coming election.

The Ghost of Free Trade

The first ghost haunting Clinton is her historic, long-term advocacy of free trade deals from NAFTA to the current Trans-Pacific Partnership. Clinton has said she does not agree with the TPP, but only in its present form. She promises to “take a look” at it if elected. But that’s waffling that won’t fool union and white working class voters in the Ohio-Pennsylvania-Michigan-Wisconsin swing states that have seen their good jobs offshored and sent to other countries as a direct result of free trade deals from Bill Clinton’s NAFTA to Barack Obama’s TPP.

Nor will this former Democrat constituency forget how Obama in 2008 pledged, similar to Hillary, to take a look at changing NAFTA, but then went on to become the biggest advocate of free trade ever—cutting deals with Panama, Colombia, bilaterally with other countries and is now pushing hard for TPP and a similar deal with Europe.

Union workers in the Great Lakes area of Ohio-Pennsylvania-Michigan played a major role in carrying those swing states for Obama in 2008. The majority have likely already gone over to Trump, who’s position on free trade deals is more directly opposed than Hillary’s carefully worded ambivalence. If they turn out to vote, it will be for Trump.

The War Hawk Ghost

Another ghost haunting Clinton is her repeated and consistent war-hawk positions assumed while in the senate and then as secretary of state. Hillary voted for the wars in Iraq and Afghanistan, was at the center of initiating war in Libya, and favored more direct U.S. military action in Syria.

As secretary of state, she also allowed—unchecked—her neocon-ridden state department, led by Undersecretary Virginia Nuland, to actively help provoke a coup in the Ukraine in 2014. No matter how hard she tries at the eleventh hour, Clinton cannot shed the war-hawk image she nurtured for more than a decade. This will cost her votes with millennials, who already deserted her for Sanders for her pro-war history

The Ghost of Abandoned Millennials

College educated millennial youth are also abandoning Clinton as a result of the Obama administration’s failure to do something about their more than $1.2 trillion college debt and the long-term underemployed in part-time and temporary jobs with no benefits and little prospects for the future. The Obama administration may brag of the jobs it has created since the last recession, but most millennials languish in low pay, no benefit service employment, with more than a third living at home with parents and unable to start families or independent lives.

They may not like Trump but their resentment will likely translate into not voting for Clinton. Attempts to lure millennials back with promises of free college tuition are too late for those already indebted; and a few weeks of paid maternity leave for new parents appears as a token alternative for more generous childcare tax cuts proposed by Trump.

The Ghost of the Hispanic Vote

The constituencies of union labor, youth, and people of color were the voters that gave Obama his second chance in 2012 and returned him to the White House. He rewarded trade unions with the TPP and millennials with debt and underemployment.

Obama carried key swing states like Florida, Virginia, Colorado, Iowa and others largely as a result of the Hispanic vote as well. He promised them, in exchange for their vote in 2012, immigration reform, the Dream Act, and direct executive action. What they got was the largest mass deportations in modern U.S. history and broken families. Trump may insult Mexican-American voters with stupid off-the-cuff remarks and silly promises to build walls. But the deportations have had a far more devastating effect on Latino families and voters in key states in the Midwest, southwest and Florida.

Florida is a must-win swing state. Whoever loses Florida would have to win virtually all the remaining swing states. Obama carried more than two-thirds of the Latino vote Florida in 2012. Clinton has barely 50 percent support of that constituency today. In addition, a majority of the youth vote now favor Trump, not her. The ghost of past mistreated Latinos under Obama thus hangs heavy over Clinton in the present in that state—just as free trade and job loss do in the other key swing state of Ohio. Losing both means virtual defeat.
These ghosts hang heavy over the Clinton campaign in the swing states. Trump will have trouble with establishment Republicans and some Tea party types will certainly go to the Libertarian candidate, Gary Johnson. But Clinton may have even bigger problems with mobilizing white union workers, youth, and Hispanics—the very voter constituencies that made the big difference in giving Obama one more chance in 2012.

How the two candidates perform in the upcoming presidential debates will also weigh heavily on the election outcome. Can Clinton offset her voter turnout disadvantage by clearly prevailing in the upcoming debates? The election may be scheduled for November, but it may be all but over by October if she clearly doesn’t.

Jack Rasmus is the author of the just-released book, “Looting Greece: A New Financial Imperialism Emerges,” and the previous, “Systemic Fragility in the Global Economy.", both published by Clarity Press, 2016. He blogs at


A week ago, on Monday, September 26, the 1st Presidential debate was held. 84 million watched the two most disliked candidates in perhaps more than a century square off and debate.

The one, Donald Trump, a self-proclaimed billionaire wheeler-dealer real estate developer backed by billionaire economic advisers and campaign contributors like sleazy Casino magnate Sheldon Adelson, hedge fund vultures Robert Mercer and John Paulson, private equity king Stephen Feinberg and at least a dozen other billionaires that constitute Trump’s current ‘economic team’; the other, Hillary Clinton, a mere multimillionaire worth a paltry $200 million (not counting her foundations valued at around $400 million), who has accumulated her wealth in just the past decade by means of her (and her husband Bill’s) close connections to investment bankers like Goldman Sachs CEO, Lloyd Blankfein, billionaire hedge fund managers like George Soros and James Simons, multinational tech company CEOs, and billionaire corporate media families like the Sabans, Katzenbergs, and Coxes.

The major economic issues raised in the debates included jobs, trade, taxes and the $20 trillion US government debt. On domestic policy, the focus was racism and gun violence. On foreign policy—Isis, Iraq, NATO, China, first use of nuclear weapons, and Russia.

Taxes and Jobs

Trump proclaimed his plan would cut taxes by $12.5 trillion. He proposed to pay for the cuts by repatriating $5 trillion of cash US corporations continue to hoard offshore. The incentive to repatriate the $5 trillion would be to reduce the corporate tax rate to 5% to 7%, instead of the current 35. But Trump conveniently ignored pointing out this repatriation trick was already played in 2005-06 under George W. Bush. US corporations had accumulated $2 trillion offshore, were given by Congress a ‘pass’ and a lower rate of 5.25% to repatriate so long as they created US investment and jobs with remainder of the repatriated funds. They brought it back, all right, but did not create jobs and instead used the excess profits they realized to buy up companies and pay out dividends to shareholders.

But Clinton carefully did not pick up this issue and use it against Trump in the debate. Why? Because Democrats in Congress are currently proposing the same tax repatriation scam as Trump and Clinton admitted she too supported ‘repatriation’ business tax cuts.
While talking in generalities about ‘taxing the wealthy’, Clinton carefully avoided mentioning that tax cuts for business under Obama have been even more generous than they were under George W. Bush. Bush tax cuts from 2001-2008 amounted to approximately $3.7 trillion—of which it is estimated 80% accrued to businesses and wealthiest households. Obama extended the Bush tax cuts for two years from 2008 to 2010, at a cost of another $450 million, then provided another $300 million in his 2009 bailout package, and then struck a deal with Congress to cut taxes another $4 trillion in January 2013 by again extending Bush’s tax cuts another decade through 2022.

And conspicuously missing in the debate was that neither candidate commented on whether they supported the further major tax cuts for corporations being planned to passage right after the November elections. That’s because both no doubt will support it when it comes up for voting in Congress soon following the election.

Both candidates avoided responding directly to the moderator’s question: ‘Would you support raising taxes or reducing taxes on the wealthy”. Instead of substance, the debate on taxes focused on whether Trump personally paid taxes and why he refuses to release his tax returns. Clinton kept pressing the subject, scoring points repeatedly as Trump fumbled the issue of his personal taxes. He finally responded to why he hasn’t paid taxes or released his tax records with “I guess that makes me smart”—a remark that will no doubt cost him significant votes.

In the debate, both candidates supported the myth that tax cuts create jobs. The only difference between them is which cuts. Trump meant corporate tax cuts. Clinton meant a mix of business and non-business. But the historical record shows clearly there is no relation between tax cuts in general, and business tax cuts, and job creation in the 21st century. US manufacturing employed 18 million workers in 2000. After nearly $10 trillion in tax cuts, it now employs 12 million. Construction employment has similarly declined. While service jobs have increased since 2000, so too have the ranks of the part time, temporary, and those employed in the underground economy. Together with these ranks of partially employed, more than 6 million more have left the labor force in the US—a net poor return in jobs for the nearly $10 trillion in tax cuts.

NAFTA, TPP and Trade

Trump’s business constituency of real estate and financial interests is less concerned with trade deals than Clinton’s. Trump is also targeting small businesses, which typically don’t export but are harmed by imports, as well as white working class in the Midwest whose incomes have been devastated by free trade deals like NAFTA. However, unlike before the debate, he didn’t declare he would discontinue the existing trade deals. He promised first to stop the further offshoring of US jobs —without explaining how he would do this—and also left unexplained how he proposed to get the millions of jobs previously offshore back to the US. Clinton too provided no details how to get the jobs back or what she would do to stop future bloodletting of US jobs offshore.

While declaring NAFTA as ‘defective’, Trump simply added “we need to renegotiate trade”—a position little different from Clinton’s that we “need to take a new look at trade”. The debate thus talked in generalities that leave the door open after the election for either to support the TPP and undertake token reforms at best regarding NAFTA. More revealing of Clinton’s true intentions perhaps was her off the cuff comment that she’d vote again for CAFTA (Central American Free Trade Agreement) if given the opportunity.

Debt and Defense Spending

Trump several times during the debates referred to the nearly $20 trillion in US national debt. But what he failed to mention is that studies show about 60% of that debt is due to tax cuts and declining US tax revenues. Another $3 trillion at least is due to US war spending since 2003. Yet in the debate Trump called for accelerated war spending, while Clinton said nothing about whether she would increase war spending or reduce it. Her silence spoke volumes on that topic, however, as did her repeated references to the need to confront Russia and China. While Trump directly indicated he would not use nuclear weapons first, Hillary avoided answering the moderator’s question, implying perhaps she would, which has been the US official position to date.

The Silly Subjects

Much of the time of the debate was also consumed by extensive discussion of such silly issues as whether Obama was born in the US, whether Hillary had the ‘stamina’ to be President or Trump the ‘temperament’, Trump’s personal bankruptcies, and whether each would accept the outcome of the vote.

The Missing Debate

More important perhaps than what was said was what was ignored and not discussed by the candidates during the debate—like the stagnating and declining incomes of tens of millions of working and middle class Americans since 2000, the simultaneous approximate 10 trillions of dollars in capital gains, dividends and interest income obtained by the wealthy 1% over the same period, the collapsing pension and retirement systems today in the US, the increasingly unaffordable rents and healthcare insurance costs, US drug companies’ price gouging and unraveling of Obamacare, the US central bank’s policy of low interest rates destabilizing the economy, the consistent violation of regulations by bankers, the new US military adventures now being prepared for Russia’s east Europe border and China’s coast, the militarization of US police forces, what to do about racism and gun violence besides meaningless calls to ‘improve community-police relations’. Nothing was said about global climate crisis by either candidate; nor about the opaque manipulations, by both candidates, of their personal foundations for political use.

The Aftermath

In the days immediately following the debate, the general consensus was that Trump’s rambling and unfocused responses to Clinton meant he had clearly performed poorly and had lost the debate. Clinton recovered in the polls, pulling even or just a few points ahead in national polling and assuming a slight lead in several of the ‘swing states’. But with 87% of voters having already decided, national poll results are largely irrelevant, and the margin of error in the polling in the swing states still remains so narrow, post-debate, that it is insignificant in most of the swing states.

How is it that Trump could have performed so poorly in the TV debate and the race still remain so close? What the past week does show is that despite Trump doing all he can to put his foot in his mouth, and help Clinton with outrageous sexist and racist statements, there still remains a large, widespread and hardened discontent with Clinton. The first debate should have clearly ‘put Trump away’, and locked in an eventual November victory for Clinton, but it hasn’t. Which candidate turns out its traditional base to vote in November in the swing states still remains the key element for who wins the election.

Given that strategic reality, it’s not surprising that Clinton in the past week has intensified efforts toward trying to convince millennials to turn out to vote for her. A Democrat Party ‘full court press’ has been launched targeting the under-35 voters, many of whom had defected to Sanders in the primaries as well as to the Libertarian candidate, Johnson, and Green Party candidate, Jill Stein.

In synch with this effort, this past week the anti-Trump mainstream corporate media has stepped up its critique and efforts to marginalize both Johnson and Stein, pressing the old theme that ‘a vote for a third party is a vote for Trump’. The past week Clinton campaign thus began mobilizing Sanders and liberal darling, Elizabeth Warren, having them tour college campuses pitching the theme to millennials to ‘get out and vote’. Simultaneously, Clinton herself has begun to prioritize themes of college tuition and child care more in her speaking engagements and in her media advertising. In the remaining weeks before the election, watch for the Clinton camp to launch new initiatives as well to shore up her weak base among white working class voters in the Midwest swing states, and among Latinos there and in Florida, Virginia-Carolinas, Colorado-New Mexico-Nevada.

The Clinton campaign has clearly not yet turned out the defections of the youth, under-30 vote, lost during the primaries. Nor has it been able to excite Hispanics and Latinos as did Obama in 2008 and 2012 with false promises of Dream Acts and Immigration justice. And the white, non-college educated working class in key Midwest states remains all but lost to Trump for good.

The continuing hard core discontent with Clinton has its roots not only in her own political record on war, trade, and her intimate ties to the banking and corporate elite, but in the poor economic legacy left by Obama policies and programs over the past eight years. Clinton presses her point the US economy has not been as bad as Trump claims, but for many constituencies—especially youth, minorities, and non-college educated white workers—it is not believable. In fact, for many it has been a disaster. But you won’t hear that truth from the mainstream corporate media or the Clinton camp.

Behind Clinton’s troubles in this election is the ‘gray eminence’ of failed Obama economic and social policies that Democrats refuse to own up to—i.e. creation of only low pay, part-time, temp and ‘gig’ service jobs with no benefits, crushing levels of student debt, escalating rents and health insurance costs under Obamacare, declining savings for tens of millions of retirees after eight years of near zero interest rates by the Federal Reserve under Obama, continuing free trade destruction and offshoring of US manufacturing, millions of homeowners still ‘under water’ on their mortgages, chronically rising household debt, perpetual wars in the middle east, intensifying racism and police violence throughout the US, record levels of immigrant deportations, etc.—in other words, the ‘legacy of Barack Obama’, which hangs like a thick political fog over the Clinton campaign threatening key constituency voter turnout while holding up support for Trump despite his best efforts to scuttle his own campaign with his mouth.

Jack Rasmus is the author of ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at His website is and twitter handle, @drjackrasmus.

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