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Since the official end of the last recession in June 2009, the wealthiest 1% households in the USA have captured 91% of all the net income gains, according to university studies based on US income tax records. At the same time, median family real incomes have consistently fallen 1%-2% every year since 2009 in the US—and that’s at the median income level. For those below the median, the real income decline has been even greater. That’s almost 100 million households of ‘production and non-supervisory workers’ in the US, trying to survive on stagnant or falling wage incomes for the past six years.

How has this extreme inequality come about? How is it that wage incomes have been stagnant during a so-called ‘economic recovery’ since 2009, while the wealthiest 1% have captured virtually all the income gains for themselves?

It starts with profits. Compressing wages have allowed corporations to enjoy historic record profit margins—i.e. profits not from increased sales of goods and services but from slimming down operations, from cost cutting, which means mostly labor cost cutting.

Grow Profits by $5 Trillion in 5 years

Official government estimates of US corporate profits amounted to $1.3 trillion in 2008, rising to more than $2.4 trillion in 2014. Cumulatively, over the six years since 2009, that adds up to extra profits of $3.7 trillion over and above the $1.3 trillion level of 2008. But that’s not all. That’s only profits from sales of goods and services.

Not included in the $3.7 trillion are profits from corporations’ speculating in financial assets and securities, which is equal to another fourth of total corporate profits. That’s profits from buying and selling stocks, bonds, derivatives, currencies, real estate properties, and so on. At roughly one fourth, that’s about another $1 trillion dollars .

So US corporations have added about $5 trillion extra profits since 2009, give or take a couple hundred billion dollars here or there. The key question is what’s happened to that $5 trillion?

$3.8 Trillion in Stock Buybacks and Dividends

The lion’s share of the $5 trillion–$3.8 trillion— went to wealthy corporate shareholders, distributed in the form of record corporate stock buybacks and dividend payouts since 2008. As corporations reaped historic, record profits—from squeezing wages and speculating in financial securities—so too did their wealthy ‘owners’ receive record distributions of corporate income in the form of stock buybacks and dividend payouts. That’s how the rich get richer in the USA. Their corporations are the ‘conduit’; stock buybacks and dividend payouts are the ‘pay offs’.

Here’s some interesting facts on corporate stock buybacks and dividend payouts in recent years. Note the figures apply only to the largest 500 US corporations. Totals would be higher if all corporate buybacks and dividends were included.

In 2009, Standard & Poor’s largest 500 corporations distributed stock buybacks of ‘only’ $137 billion to shareholders. Dividend payouts were another $195 billion. That’s a combined $332 billion paid to shareholders in 2008, in what is generally considered the worst year of the recent 2007-09 great recession. Oh, such hard times for shareholders, only $332 billion—while 27 million workers lost their jobs, had their real incomes reduced for the next five year, and 14 million lost their homes.

But the years since 2008 have been even better for shareholders and the wealthiest 1%, in fact much better: escalating ever higher since 2009, by 2014 corporate buybacks rose to $553 billion and dividend payouts by another $350 billion. That’s $903 billion in just the year 2014 alone, or three times the level of combined buybacks and dividends in 2008. And over the five years since 2009, that’s a cumulative total of $3.8 trillion in buybacks and dividends.

That $3.8 trillion combined payout last year leaves just $1.2 trillion of the $5 trillion undistributed—which coincidentally is just about what remains on corporate balance sheets for the largest 500 corporations in hoarded cash at year end 2014.

Forecasts for this year, 2015, project a further 16% rise in corporate stock buybacks and another 14% for dividends. That’s more than $1 trillion that will be paid out in 2015—$604 billion in buybacks and $400 billion in dividends.

Meanwhile, economists try to convince us the gross income inequality in the USA today is the result of lack of workers pursuing better education or simply not being productive any more. The victims of income inequality are the cause, in this perverted logic of the professors. At least their conservative ilk. The more liberal variety of the professorial tribe claim it is excess compensation paid to CEOs or the tax system that has produced the income inequality. Neither liberals or conservatives say anything about inequality resulting from profits from excess financial speculation, and from six years of wage compression, subsequently distributed in the form of annual trillions in stock buybacks and dividends.

Capitalism’s New 21st Century ‘Business Model’

Global capitalism is shifting to a new, even more profitable business model. In decline is the old industrial production model. Fast replacing it is a model focusing on financial asset investing and speculation, on artificially boosting financial asset values like stocks, bonds, derivatives, real estate and the like.
In the post-2000 global world, instead of investing in real things, i.e. real assets, buildings, equipment, etc., in order to produce real goods and services, the new corporate model is squeeze profits from wages and then add to that further profits from speculating in financial securities. Profits from cost cutting or profits from driving up financial asset prices resold for a capital gain, or some combination of both. That’s the new model. Forget making things that require investment and the creation of decent paying jobs and incomes to buy the things.

Create profits by driving up financial asset prices. Buyback stock and payout dividends. That drives up stock prices even further. (In the US the stock markets have tripled in value since 2009). Both stockholders and corporations then get even richer. Complete the new model by arranging for government and ‘bought and paid for’ politicians to reduce taxes on dividends and capital gains from stock sales to 15%, as in the US. That way shareholders can keep the lion’s share of the capital gains from the buybacks and dividends.

General Electric Co., Buybacks, & Blackstone

General Electric Company is one of the largest manufacturing companies in the US and the world. It produces aircraft equipment, transport equipment, medical devices, power and water systems, lighting and appliances, and oil & gas equipment. It also became one of the biggest finance companies in the US in recent decades, earning from its financial subsidiary, GE Capital Assets, $6 billion of its annual $30 billion revenues last year.

But GE represents the classic ‘old business model’ of industrial production, of goods provided to both businesses and consumers. Last week GE announced its plan to buyback $90 billion of its stock over the next three years, starting with $50 billion this year. GE’s stock price has languished since 2007. It promised a mere $10 billion stock buyback in 2012, but that did little to raise its stock price two years ago. However, the $90 billion announcement last week produced an immediate double digit overnight stock gain for the company. GE has thus signaled it is planning to try to join the ranks of the new 21st century business model, where the way to raise stock prices is to buyback stock rather than produce profit gains from making and selling more real things.

To finance the $90 billion in buybacks, GE announced it was selling off much of its GE Capital Assets financial operation. $26 billion of its portfolio of offices, malls, commercial properties, and housing is being sold. The sale is necessary to offset growing losses from GE’s oil and gas equipment business, which is now collapsing in value as the global oil glut continues. Longer term prospects for GE’s old industrial products business model don’t appear very good. But $90 billion in buybacks will go a long way to support GE stock for a while. In the 21st century it is now more important to boost corporate stock prices by whatever means, more important than making profits the old way, investing in real assets, providing jobs and incomes, and making products to sell to customers.

To fund its $90 billion stock buybacks GE is selling off assets to a company that represents the ‘new business model’ of the 21st century global capitalism. The global private equity company, Blackstone, is buying most of GE’s financial real estate assets currently up for sale.

Blackstone doesn’t make things, or employ many workers, or generate income for many except its managers and investors. It fact, it makes nothing at all. It has pure financial speculation business model, as are all private equity companies. Blackstone buys assets and resells them at a higher price, making speculative financial profits. Half of its total profits in 2014 were made from buying real estate and then ‘flipping’ it, i.e. selling at a higher price. Blackstone owns $272 billion in assets it has bought from other companies, $81 billion of which is real estate. It is now the largest ‘landlord’ in the USA with more than 50,000 housing properties which it rents out. It has become far more profitable than General Electric, by speculating in assets rather than producing anything. It represents the far more profitable business model of 21st century global capitalism than does GE. It represents the new face of 21st century capital.

The General Electric vs. Blackstone comparison reflects several key trends underway in 21st century global capitalism: why the global economy today is on a steady, long run slowdown, why real investment is on a slowing trajectory, and why a drift toward deflation in goods and services in settling in everywhere.

The old industrial capital business model represented by GE is under significant pressure. Revenues are slowing. Stock prices are consequently performing poorly. GE and others are thus driven to sell off parts of the company in order to fund buybacks in order to keep their stock prices from declining further. In contrast, financial asset speculators like Blackstone are buying up the assets of the old industrial model companies, and generating more and more profits from pure financial asset investing. Investors are therefore piling in to the Blackstones, knocking on the door, wanting to give it the money capital they are diverting from the GEs.

Their motto: ‘Who cares how profits are made, so long as they can be made faster and greater than before. So give us more stock price increases, more buybacks and more dividends. Who cares about stock or bond bubbles. We can get out before the bust comes again’—or so they say, time and again, until the next financial crash in stock and bond values.

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015. He blogs at jackrasmus.com. His website is http://www.kyklosproductions.com and twitter handle, @drjackrasmus.

One of the elements of cultural ideology in the USA is that the United States is somehow exceptional compared to other countries; that is, it is different in a number of positive ways that distinguish it from all other countries.
Exceptional in Health, Education & Retirement?

In a perverted way, there is some truth to this. The United States is exceptional in that it is the only advanced economy in the world that has failed to provide universal health care for its citizens. It has a large, parasitical for-profit health care system, dominated by multi-billion dollar profit making private health insurance companies that suck $1 trillion a year from the wallets of US consumers for pushing paper around, a vast network of ‘for profit’ hospital chains that suck another $900 billion a year, pharmaceutical drug companies that charge $94,000 for drugs to treat someone with hepatitis C (that’s $1,125 per pill) and charge patients $14,000 to $64,000 a month for cancer drugs, and it has the highest paid professional medical personnel in the world.

The US spends more than $3 trillion a year, and rising, on health care. That’s about 18% of its $17.4 trillion annual GDP, or almost one dollar out of every five spent on everything is for healthcare. That’s the highest spending on healthcare in the industrial world. In return for that massive spending , it ranks 39th in infant mortality rates, 42nd in adult mortality, and 36th in life expectancy. Yes, the US is exceptional in health care.

It is also exceptional in education. Its college students have become, in effect, indentured servants to the education establishment of overpaid administrators and bankers, owing more than $1.1 trillion in debt just to get a college education—more per capita higher education debt than any other country in the world. The cost of attending a four year college today is, on average, $30,000 to $60,000 a year for a four year undergraduate education. For those who can’t afford college there’s no meaningful job training programs available any longer. Meanwhile, 70% of college professors and instructors in the US are part time/temp workers, many of whom earn poverty wages and have no benefits. That too is ‘exceptional’, I suppose.
US workers work the longest hours among the industrial economies, have the shorted annual paid vacations (on average 7 days paid a year), and face the prospect of poverty when they retire or can no longer work. Social security pensions average only $1,100 a month, private pensions (called 401k plans) average less than $50,000 total savings for those age 60 and approaching retirement, and more than half of US workers live pay check to pay check with no personal savings whatsoever. As 70 million ‘baby boomers’ born after 1945 start to retire, tens of millions of them face the prospect of a penniless, poverty-ridden retirement. No wonder the fastest growing segment of the US workforce is those aged 65-74, as many return to work just to make ends meet.

Income inequality in the US is also the most extreme among the advanced economies, and growing worse every year. CEOs of US corporations make around 400 times the average pay of the average worker in their company—the biggest gap in the industrial world. (In 1980 they made only 35 times).The wealthiest 1% households (investor class nearly all), gained no less than 95% of all the net income growth in the US since 2010, which compares to 65% during the George W. Bush years, 2001-2007, and to 45% during the Clinton years in the 1990s. Meanwhile, the median family income has been declining in the US at 1%-2% every year for the past decade. (Ok, maybe that’s not exceptional, since pay for workers has been steadily declining in Europe and Japan too).

US workers may get only 6 months unemployment benefits, at less than one-third their pay, when they lose their jobs, compared to German workers, for example, who get up to two years in jobless benefits and job retraining to boot. But, what the hell, we got more aircraft carriers than the Germans.

Yes, the US is exceptional. Its workers are the sickest, most indebted, most overworked, insecure, and among the least compensated and the most fearful of the future than any in the advanced industrial world.

The US is also exceptional in that it spends more on its military than all the rest of the advanced economies combined. The US’s true ‘war budget’ is about $1 trillion a year, not the reported $650 billion or so for the Pentagon, which is stuffed away in dozens of corners in its annual economic budget. It has more than 1000 military bases worldwide. It is engaged constantly in more wars worldwide than any other country by far. And it spies every day on more of its, and rest of the world’s, citizens than all the ‘spooks’ in the rest of the world do combined. ‘Exceptional’? You bet.

The Myth of US Economic Exceptionalism

Another favorite focus of late for the ‘US is exceptional’ crowd is the US economy.

Japan may be in its fourth recession since 2009. The Eurozone may be slipping in and out of recession every couple of years. But the US economy is in full recovery. So we’re told. It is growing nicely, while the rest of the world lags behind. Or so the ideological spin goes.

The ‘exceptionalists’ like to refer to last summer 2014’s US economic growth figures of 4% to 5% in GDP growth rates, its 200,000 a month new jobs created in 2014, and its ever-rising stock and bond markets as evidence of such economic exceptionalism. But a closer look, at last year’s much hyped 5% GDP growth in the 3rd quarter 2014, and at the data for most recent months in early 2015, show there is nothing exceptional about the US economy.

Long term, it continues to grow at an annual rate about half of what is normal in past decades. Over the past six years, occasional quarter GDP growth rates of 4-5% typically are followed by a sharp collapse of GDP growth, or even negative GDP, within months. This in fact has happened four times since 2009 resulting in a ‘stop-go’ economic recovery: in the first quarter of 2011, fourth quarter of 2012, first quarter of 2014 last year—and it appears it may happen again a fifth time in the recent first quarter, January-March 2015.

The US economy’s ‘yo-yo’, or ‘seesaw’, economic trajectory is nothing special or exceptional. Japan and Europe have been experiencing the same. Their ‘bouncing’ along the bottom is just at a level closer to the bottom (or even below it) than has been the US economy’s the past five years. Whereas the US economy’s growth spikes up to 4% or so on occasion, only to collapse back again to zero or less growth, the US economic growth longer term has been averaging about 1.7% annually the past five years. That’s about half its normal growth rate compared to US recoveries from recessions in the past. Japan and Europe might spike to only 2% on occasion, but then slip to negative growth—i.e. into a bona fide recession.

So it’s ‘stop-go’ recovery for all three, occurring just at different levels of ‘go’ and of ‘stop’. Nothing exceptional or different economically over the longer term, in other words.

Comparing the US temporary 5% economic growth of last July-September 2014, to what will almost certainly prove to be a 1% or less growth rate for the January-March 2015 period when the final numbers come in later this May, shows that temporary, ‘one-off’ factors occurred last summer 2014 to produce the brief 4%-5% GDP US growth. Those temporary factors have since reversed or disappeared in the first three months of 2015. Take away those one-off factors of nine months ago, and one gets the less than 1% growth likely to register for the most recent three months, January-March 2015. Here’s a brief explanation:

Shale Gas/Oil Industrial Production Boom

In early 2014 the shale gas/oil boom was in full swing in the US. That boosted what is called Industrial Production and much of last year’s jobs growth. But when the global oil price glut began last June, precipitated by Saudi Arabia and its emirate friends attempt to drive the shale gas/oil producers in the US into bankruptcy, the shale boom in the US came to an abrupt halt. Industrial production slowed rapidly after the summer and has continued ever since, turning negative since December. Jobs began to disappear. It is projected that jobs in Texas, the largest shale producer, will decline by 150,000 in early 2015.

Manufacturing & Exports

In early 2015 US manufacturing and exports continued to grow, as the US dollar remained low giving US exports an advantage. But the collapse of world oil prices and the simultaneous talk by the US central bank it would raise interest rates resulted in a 20% rise in the dollar. Japan and Eurozone QEs pushed it still higher. The result was the beginning of a collapse in late 2014 of the contribution of US manufacturing and exports to US economic growth. That continues into 2015. Manufacturing orders have declined every month since December 2014.

Obamacare Consumer Health Spending

Another one-time boost to US GDP in mid-2014 was the signing up of 9 million of US consumers into the government’s new privatized health insurance coverage program, who couldn’t get health insurance. They started paying monthly premiums, and using health care services. That provided a boost to consumer spending that didn’t previously exist. But by 2015 the sign ups have leveled off. No more additional boost consequently in 2015.

Auto Buying Boom Goes Bust

Another consumer spending element that was peaking last summer was the boom in auto sales in the US. That too has now come to an end, as the market in the US has become saturated in terms of auto sales after four years. Auto sales since December, usually a strong month for auto sales, declined and have continued declining through February. The auto boomlet in the US is over.

General US Consumer Spending

Consumer spending in general has turned negative, starting in December. The US indicator, the Personal Consumption Expenditures Index (PCE) declined in December-January, was flat in February and suggests no change in March. Consumer spending was supposed to surge, according to mainstream economists, as consumers enjoyed lower gasoline prices. Instead, consumers saved the lower gasoline prices or used it to help pay off their massive debt loads (which this writer predicted would be the case last year). US retail sales, which constitute the largest part of consumer spending, grew at a 4%-5% rate over last summer. But once again has turned negative since December 2014, falling by -1.0%, -0.9%, -0.6%, December through February, and likely falling again in March 2015. So both retail sales and consumer spending in general have turned negative.

Business Spending

In the third quarter, July-September, of the year for the past five years, businesses in the US have boosted their spending, building up their inventories, in anticipation of a rise in year end holiday consumer spending. But the holiday spending then typically falls short of expectations, and businesses ‘work off’ the inventories in the first quarter, January-March, of the following year. This has happened yet again in 2015. Another element of business spending, on new equipment, is barely inching along, growing only 0.6% in the fourth quarter of 2014 and likely no more or even less in the first quarter.

Government Defense Spending

It is a well-known and documented fact that in the US, every other year in which there is a national election, the federal government holds off spending early in the year so it can release it in the summer before the election. That occurred in 2012 before the national presidential elections and in 2014 before the midterm Congressional elections. That government spending gives an added boost in the July-September quarter, as politicians try to create the impression the economy is doing better than it is longer term. That too happened last summer. But that spending will contract early in 2015 relative to last summer.

US Jobs Creation

Job creation always lags the real economy. And after growing jobs at a rate of 200,000 a month last year (mostly low paid, part time/temp, service jobs), jobs growth in March rose by only 126,000. Preceding months of January-February were also reduced. The employment data thus are now confirming the general economic slowdown in the first quarter 2015 as well. Apologists for the politicians will no doubt use the excuse of ‘bad weather’ for the feeble March jobs numbers. But what’s really happening is job creation is, and will continue, to slow due to real reasons. The ‘canary in the jobs mine’ is jobs in the goods producing sector, which have been slowing rapidly for several months and now turned negative in March. That reflects the collapse in manufacturing, mining, and good production that began late last year and now continues.

The Ideology of US Exceptionalism

In short, there is nothing exceptional about the US economy when one looks behind the ideological spin. It continues on its stop-go trajectory of the past five years. The economy weakens significantly every 4th quarter/1st quarter and the weak growth is ‘made up’ the following summer. Smoothing and averaging it all out over the year produces the longer term sub-historical average growth rate of around 1.8%–i.e. half of normal. And nothing exceptional. Japan and Europe are doing the same, just at a lower level of ‘stop-go’, sub-normal.

Long term US GDP growth is averaging 1.8% vs. 0.5% (Europe) vs. 0% (Japan). Does that make the US economy exceptional? Not really. 20 million are still jobless in the US; roughly the same as in the Eurozone. That’s not exceptional. Prices are now flat in the US (i.e. no change) and heading toward deflation; price stagnation also exists today in Europe and Japan . Real investment is declining in the US as in Europe and Japan—again nothing exceptional. And real wage incomes continue to decline for median income workers in the US—as they do for workers in Europe and Japan.

One of the favorite ideological strategies of ruling elites and classes is to convince their working classes that they are exceptional—i.e. meaning their situation may not be great, and may even be declining, but at least they are not as bad off as others. ‘It could be worse, just look at those poor workers in country X and Y. It may not be great here, but what the hell, we’re not so bad off, are we?’ The appeal to exceptionalism is just another ideological ploy to get working classes to accept their deteriorating conditions. It’s just another ideological tool to immobilize people. To accept their reality as their fate. To make them believe that, as their living conditions are getting worse, it’s not really that bad. But it is….

Jack Rasmus is author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, published by Clarity Press, 2015; and the previous works, ‘Epic Recession: Prelude to Global Depression’, Pluto Press 2010, and ‘Obama’s Economy: Recovery for the Few’, Pluto Press, 2012. He blogs at jackrasmus.com.

If your answer to the above is ‘yes’, then I welcome you to consider joining me and those participating online in a course I have agreed to teach for the newly formed progressive ‘Z School’ collective. The school, and my class, starts April 4, but you can join through next wednesday. This is an online, 8 week class. The description of the content of the 8 weeks is indicated below. Cost for the course range from $100 for full enrollment; $60 for low income enrollment; and $30 for observer. As instructor, I post my interpretations and the readings online, and I and students engage in a forum on fridays online, and a chat session on sundays online.

For more information and enrollment instructions, go to the Z school webpage at:

https://zcomm.org/zschool/moodle/

There you will find a description of my particular course, ‘Finance Capital in the 21st Century’, as well as other courses starting next week in this new Z school, progressive-radical initiative, taught by seasoned activists worldwide:

The 8 Week Topics for my Course are as follows:

Week/Topic #1: Marx on 19th Century Finance Capital

How has Finance Capital changed from the 19th to the 21st century? What is the role of financial instability historically in precipitating banking crashes and economic depressions? Why are most contemporary analyses of ‘financialization’–both left progressive, Marxist, and bourgeois economist–wrong? What are the prospects of another global financial crash in the next ten years, followed by a more serious economic depression ‘next time’? These are the main themes of this course. In the first four weeks, in order to answer these questions, this course will explore the views of the best economists on the subject of finance capital. In the second four weeks, the course will look at actual financial crashes and instability events since the early 1990s, as well as brewing today again, including in Japan, China, Europe, and USA.

Week 1 begins with a review of key chapters of Marx’s unpublished vol. 3 of Capital (read chapters 24-27; 30-31 recommended) on capitalist finance and credit in the mid-19th century.

A link to a free online source of these chapters is: https://www.marxists.org/archive/marx/works/1894-c3/index.htm

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Week/Topic #2: Keynes & Fisher: Finance Capital 1930s

How had Finance Capital changed by the early 20th century? What was its role in precipitating the Great Depression of the 1930s? Who were the professional speculators and how had the escalation of debt in the 1920s and financial speculation led to the stock market crash of 1929, and thereafter to four consecutive banking crashes in the early 1930s?

Keynes’ key chapter 12 of his General Theory, on the role of professional financial speculators in capitalist economies will be read and discussed. As well, will Keynes’ contemporary, Irving Fisher, and his article on the role of debt and price deflation in depressions, ‘The Debt-Deflation Theory of Depressions’. These readings will be posted here on Moodle a week prior to week 2 of the course.

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Week/Topic #3: Minsky & Rasmus: Finance Capital 1970-2000

The progressive return of financial instability in the global capitalist system in the 1970s and after will be the topic, as well as the views of the chronicler of this return, economist Hyman Minsky. How the rise of finance capital from the ashes of the great depression and post-1945 period occurred, and what were the consequences in the 1970s, 1980s, and early 1990s when Minsky wrote of it. Why Minsky believed financial instability was the intrinsic nature of Capitalism. What Minsky did not see coming.

Minsky’s seminal articles, ‘The Financial Instability Hypothesis’, and selections from his book, ‘Stabilizing an Unstable Economy’ will be posted here on Moodle, to read and discuss. Select chapters from Jack Rasmus’s 2010 book, ‘Epic Recession: Prelude to Global Depression’ will be posted for reading, as will a powerpoint by Rasmus summarizing key points from Minsky and himself for discussion.

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Week/Topic #4: Shadow Banks & New Finance Capital Elites

How Finance Capitalism, and the ranks of the global Finance Capital elite have evolved and changed in the last two decades is the topic of this fourth week’s class. What are shadow banks and how are they destabilizing global capitalism? what is the role of debt, leverage, securitization, derivatives, the global liquidity explosion, technology, neoliberal capitalist central bank policies, inside credit, fiscal austerity, competitive currency devaluations, deflation, declining real investment, labor market ‘reform’, and other important developments to understanding the evolution of 21st century Finance Capital? Why is the global capitalist system becoming more financially unstable?

Readings will be posted on Moodle on ‘what is shadow banking’, the scope and magnitude of global debt, and other relevant readings.

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Week/Topic #5: Financial Crises in the 1990s

In weeks 5 through 8 of the course, attention turns to focus on actual financial crashes and their aftermath. Week 5 focuses on the growing frequency, scope and severity of financial instability in the 1990s. Japan’s great crash of 1990-91 and perpetual recession that followed; the USA savings and loan bust of 1990 and recession; Mexico’s ‘Tequila Crisis'; the Asian Meltdown of 1997-99; and the USA ‘dot.com’ bust of 2000.

Select, short readings on each of these events will be posted on Moodle.

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Week/Topic #6: The Crash of 2008-09 & Epic Recessions

Continuing the focus on actual financial crashes and consequences, week #6 investigates the causes and consequences of the great banking crash of 2008-09. The role of financial speculation and shadow banking in the crash, the failure of banking regulation that followed, and the failure of central bank QEs and government fiscal austerity policies to generate full recovery.

Select chapters from the instructor, Jack Rasmus’s, works and other critical analyses of the 2008-09 crash and the recessions that followed, 2010-15, will be posted on Moodle a week prior to class.

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Week/Topic #7: Financial Instability: China & Europe Today

The growing role of shadow banks, financial asset bubbles, rising government-corporate debt, failure of central banks and government policies to check the rising financial instability and slowing economies in China and Europe are the topic of this 7th class. Growing instability in the BRICS and other emerging markets. Is a new phase of global financial instability emerging, with a focus on China and Europe? Based on the theories of writers thus far reviewed, and the prior experiences of financial crashes in both the remote and recent past, what does it all mean today?

The instructor will post select readings on Moodle, including from the global business press and global capitalist financial institutions (BIS, IMF, McKinsey Research, etc.) on financial instability in China and Europe today.

The instructor, Jack Rasmus, will also provide a powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.suggest evidence of forces behind a new financial crisis are building in the global economy, especially in China and Europe today.

Week/Topic #8: Financial Instability in the USA: 2010-2020

In this final class, the focus turns to the USA economy in 2015. Is the US economy really ‘exceptional’? On a path to growth and stability, real and financial, while the rest of the world grows more financially unstable and slips into more recessions everywhere? This class examines the claim of American economic exceptionalism and debunks the argument. Sources of growing influence of shadow banks and the new finance capital elite are identified and discussed. Forces of financial instability growing behind the scenes are noted. Possible scenarios, near and future, of increased financial instability are proposed. Why the USA may be on the eve of another financial crises and even deeper downturn than that following 2008-09.

The class will discuss the USA scenarios, and the conditions in China, Europe, the growing crises in emerging markets, the global oil price collapse, in light of both the theoretic views of Marx, Keynes, Minsky, Rasmus and others, as well as the historical examples of financial crashes of the past two decades. The general topic of how has Finance Capital changed today? Is it a dominant force in the 21st century, and a fundamentally destabilizing fact that threatens the global capitalist economy itself?

A draft selection from Jack Rasmus’s forthcoming June 25-26 public presentation in Spain, ‘A Theory of Systemic Fragility in the 21st Century Global Economy’, will be posted as reading on Moodle.

The instructor, Jack Rasmus, will also provide a word or powerpoint summary of the main topics for the first (and remaining seven) class sessions, a week before each of the seven classes. Jack will reply to comments by students in the ‘open forum’ every friday, 1-2 pm pacific time. Real time chat discussions will then be held on Sunday, 11am-12n,for students to ask questions online of Rasmus.

Japan may be in its fourth recession since 2009. The Eurozone may be slipping in and out of recession every couple of years. But the US economy is in full recovery. So we’re told. It is growing nicely, while the rest of the world lags behind. Or so the ideological spin goes.

But even business research departments are now downgrading their 1st quarter GDP reports almost weekly, most now estimate a 1st quarter US GDP growth of 1% to 1.3%. That’s down from 2.2% in the 4th quarter, and from the 5% of last year’s 3rd quarter US GDP numbers that were heralded at the time that the US recovery was now in permanent mode. But we’ve heard that before, several times, since 2010.

A closer look, at last year’s much hyped 5% GDP growth in the 3rd quarter 2014, and at the data for most recent months in early 2015, show there is nothing that has really changed long term for the US economy. It’s back to its ‘stop-go’ scenario. When official figures for US GDP for the first quarter are published in late April, and revised in May more accurately, there may be a big surprise. The recent growth of jobs of only 126,000 in March, a lagging indicator, may be a harbinger of more disappointing news to come.

Long term, the US economy continues to grow at an annual rate about half of what is normal in past decades. Over the past six years, occasional quarter GDP growth rates of 4-5% typically are followed by a sharp collapse of GDP growth, or even negative GDP, within months. This in fact has happened four times since 2009 resulting in a ‘stop-go’ economic recovery: in the first quarter of 2011, fourth quarter of 2012, first quarter of 2014 last year—and it appears it may happen again a fifth time in the recent first quarter, January-March 2015.

The US economy’s ‘yo-yo’, or ‘seesaw’, economic trajectory is nothing special or exceptional. Japan and Europe have been experiencing the same. Their ‘bouncing’ along the bottom is just at a level closer to the bottom (or even below it) than has been the US economy’s the past five years. Whereas the US economy’s growth spikes up to 4% or so on occasion, only to collapse back again to zero or less growth, the US economic growth longer term has been averaging about 1.7% annually the past five years. That’s about half its normal growth rate compared to US recoveries from recessions in the past. Japan and Europe might spike to only 2% on occasion, but then slip to negative growth—i.e. into a bona fide recession.

So it’s ‘stop-go’ recovery for all three, occurring just at different levels of ‘go’ and of ‘stop’. Nothing exceptional or different economically over the longer term, in other words.

Comparing the US temporary 5% economic growth of last July-September 2014, to what will almost certainly prove to be a 1% or less growth rate for the January-March 2015 period when the final numbers come in later this May, shows that temporary, ‘one-off’ factors occurred last summer 2014 to produce the brief 4%-5% GDP US growth. Those temporary factors have since reversed or disappeared in the first three months of 2015. Take away those one-off factors of nine months ago, and one gets the less than 1% growth likely to register for the most recent three months, January-March 2015.

Here’s a brief explanation:

Shale Gas/Oil Industrial Production Boom

In early 2014 the shale gas/oil boom was in full swing in the US. That boosted what is called Industrial Production and much of last year’s jobs growth. But when the global oil price glut began last June, precipitated by Saudi Arabia and its emirate friends attempt to drive the shale gas/oil producers in the US into bankruptcy, the shale boom in the US came to an abrupt halt. Industrial production slowed rapidly after the summer and has continued ever since, turning negative since December. Jobs began to disappear. It is projected that jobs in Texas, the largest shale producer, will decline by 150,000 in early 2015.

Manufacturing & Exports

In early 2015 US manufacturing and exports continued to grow, as the US dollar remained low giving US exports an advantage. But the collapse of world oil prices and the simultaneous talk by the US central bank it would raise interest rates resulted in a 20% rise in the dollar. Japan and Eurozone QEs pushed it still higher. The result was the beginning of a collapse in late 2014 of the contribution of US manufacturing and exports to US economic growth. That continues into 2015. Manufacturing orders have declined every month since December 2014.

Obamacare Consumer Health Spending

Another one-time boost to US GDP in mid-2014 was the signing up of 9 million of US consumers into the government’s new privatized health insurance coverage program, who couldn’t get health insurance. They started paying monthly premiums, and using health care services. That provided a boost to consumer spending that didn’t previously exist. But by 2015 the sign ups have leveled off. No more additional boost consequently in 2015.

Auto Buying Boom Goes Bust

Another consumer spending element that was peaking last summer was the boom in auto sales in the US. That too has now come to an end, as the market in the US has become saturated in terms of auto sales after four years. Auto sales since December, usually a strong month for auto sales, declined and have continued declining through February. The auto boomlet in the US is over.

General US Consumer Spending

Consumer spending in general has turned negative, starting in December. The US indicator, the Personal Consumption Expenditures Index (PCE) declined in December-January, was flat in February and suggests no change in March. Consumer spending was supposed to surge, according to mainstream economists, as consumers enjoyed lower gasoline prices. Instead, consumers saved the lower gasoline prices or used it to help pay off their massive debt loads (which this writer predicted would be the case last year). US retail sales, which constitute the largest part of consumer spending, grew at a 4%-5% rate over last summer. But once again has turned negative since December 2014, falling by -1.0%, -0.9%, -0.6%, December through February, and likely falling again in March 2015. So both retail sales and consumer spending in general have turned negative.

Business Spending

In the third quarter, July-September, of the year for the past five years, businesses in the US have boosted their spending, building up their inventories, in anticipation of a rise in year end holiday consumer spending. But the holiday spending then typically falls short of expectations, and businesses ‘work off’ the inventories in the first quarter, January-March, of the following year. This has happened yet again in 2015. Another element of business spending, on new equipment, is barely inching along, growing only 0.6% in the fourth quarter of 2014 and likely no more or even less in the first quarter.

Government Defense Spending

It is a well-known and documented fact that in the US, every other year in which there is a national election, the federal government holds off spending early in the year so it can release it in the summer before the election. That occurred in 2012 before the national presidential elections and in 2014 before the midterm Congressional elections. That government spending gives an added boost in the July-September quarter, as politicians try to create the impression the economy is doing better than it is longer term. That too happened last summer. But that spending will contract early in 2015 relative to last summer.

US Jobs Creation

Job creation always lags the real economy. And after growing jobs at a rate of 200,000 a month last year (mostly low paid, part time/temp, service jobs), jobs growth in March rose by only 126,000. Preceding months of January-February were also reduced. The employment data thus are now confirming the general economic slowdown in the first quarter 2015 as well. Apologists for the politicians will no doubt use the excuse of ‘bad weather’ for the feeble March jobs numbers. But there’s bad weather every winter. What March jobs are really showing is the lagged response of job creation to the real forces slowing the US economy that started to occur late last year–and the dissipation of those temporary factors that boosted the economy last summer.

But what’s really happening is job creation is, and will continue, to slow. The ‘canary in the jobs mine’ is jobs in the goods producing sector, which have been slowing rapidly for several months and now have finally turned negative in March. That reflects the collapse in manufacturing, mining, and good production that began late last year and now continues.

In short, it appears once again, for the fifth time in as many years, that the US economy continues on its stop-go trajectory of the past five years. The economy weakens significantly every 4th quarter/1st quarter and the weak growth is ‘made up’ the following summer. Smoothing and averaging it all out over the year produces the longer term sub-historical average growth rate of around 1.8%, after convenient redefinitions of US GDP in 2013 are backed out to give the real GDP. That’s about half of normal historic US growth rates in recoveries from recession periods. And it now appears that ‘half normal’ has become the ‘new normal’.

Jack Rasmus, copyright 2015

This article originally published by teleSURtv English Edition, 3-28-15

“Two events occurred last week that mark a further phase in the waning of US global economic hegemony: China introduced its own Economic Development Bank, the ‘Asian Infrastructure Investment Bank’ (AIIB); the IMF simultaneously announced it will decide in May to include the Chinese currency as a global reserve-trading currency alongside the dollar, pound, and euro—an almost certainly ‘done deal’ as well.

The dual moves caught the US off guard, especially as the USA’s erstwhile main economic ally, Britain, was the first to announce it would join China’s AIIB as a founding member. That announcement set off a quick succession of further announcements by major western economies that they too were now joining the AIIB—by Germany, France, Italy, Luxembourg, and Switzerland—as major European capitalist economies scurried to ensure a piece of the Asian economic action and to tap China’s huge foreign currency reserves for investment in their own economies. Singapore and Australia followed within days. South Korea and Canada are now reconsidering joining, as are other once solid USA economic allies.

The initial USA response to Britain was to accuse it of “constant accommodation” of China. US Treasury Secretary, Jack Lew, even made telephone calls to British finance minister, George Osborne, requesting that he ‘hold off’ after Britain’s initial announcement, according to reports in the international business press. That effort was apparently to no avail, however, as British politicians, including prime minister, David Cameron, facing re-election within weeks, chose to leverage the decision for political purposes as well as economic. Reportedly the US also attempted to strong-arm Singapore into not joining, but failed there as well.

The entire affair caught USA political bureaucrats by surprise. The matter of joining the AIIB was thought to have been raised in European centers at low levels, but not at senior financial minister or ambassador levels. No decisions appeared imminent. Events in recent weeks show the Europeans successfully kept USA out of the loop concerning their real intentions, as Britain last week ‘jumped the gun’, as they say, with British government officials giving the reason for their decision to join the AIIB as “We want to be a Chinese partner of choice in international finance”(read: we want a slice of the economic pie before someone else gets to eat it).

The China-UK Connection

In making their announcement, British officials vowed that they want the UK to become the main destination for Chinese investments. In 2013-14, when the British and Euro economies were in particularly bad shape, major trade delegations from China repeatedly visited both Britain and Germany on numerous occasions. Much of Britain’s recent tentative economic recovery the past two years has been driven by infrastructure and property deals that have been heavily financed by massive China private capital inflows into London real estate, infrastructure projects, and south England investments. Deals to revitalize investment in Britain’s nuclear power sector are also being financed by China investment. Without China investments in the UK in recent years, and other capital inflows from emerging markets, British economic ‘recovery’ would have remained British ‘stagnation’ at best.

USA vs. China policies toward British banks offer another example of a growing divergence of interests between the USA and Britain with regard to China.

USA bank regulators have been targeting and fining London banks for their repeated scandals, money laundering, global interest rate (Libor) manipulations, and speculative excesses. London in recent years has become a veritable ‘wild west’ of international banking. The US levying of fines on UK banks has been justified. But banking is one of the few industries that keep Britain from becoming a ‘third tier’ economy. British Prime Minister Cameron therefore has done—and will do—whatever it takes to protect and advance the economic interests of his so-called ‘City of London’ (UK banking sector). He is even prepared to leave the European Union, if necessary, to prevent re-regulation of the British banking sector. So it should not have been a surprise to the USA when Cameron and other conservative British politicians turned to China and quickly joined China’s AIIB. All the signals were there already. British finance capital had already last year, in 2014, announced an agreement with China that London would become the global trading center for China’s currency, the Yuan. And Britain has become increasingly dependent on China money capital inflows in recent years, as noted. So the recent AIIB decision is just a logical consequence of deepening British-China economic relations that have been already underway now for some time, even though the USA didn’t totally ‘see it coming’.

Deepening China-Europe economic relations extend to the Eurozone and eastern Europe economies as well, not just to Britain. Trade integration between China and Germany has been growing sharply. China is Germany’s fourth largest trading partner. China has been setting up investment funds in eastern European economies from the Baltics to the Balkans; China has an offer on the table to buy Greece’s main port at Pireaus; and in recent years has been repeatedly purchasing Italian and other southern European countries sovereign bonds to help those economies weather their recent debt crisis.

Origins of the AIIB

The origins of the AIIB announcement trace back at least to 2010, when the USA quietly agreed to allow China to increase its influence in the USA-dominated international economic institution, the International Monetary Fund (IMF). Since then, however, the USA has reneged on that agreement, in order to ensure that China’s influence in the IMF would remain minimal. So China went off last October 2014 and formed its own AIIB, in what amounts in effect to a fundamental challenge to the IMF’s parallel USA-dominated institution, the World Bank.

With 27 nations having already signed on, including Britain and other Europeans, Australia, Singapore, and others, the AIIB represents a major challenge to the USA-dominated development banks, the World Bank, as well as to the Asian Development Bank (USA and Japan dominated ADB) located in Manila, Philippines. Initially the AIIB is to be funded with $50 billion to invest in Asian infrastructure. That compares with $160 billion in the Asian Development Bank (ADB). However, the near term AIIB target is to provide $100 billion in funding. And by 2020, potentially up to $730 billion. That’s a lot of projects and potential profits for European and British businesses.

Britain and the other European economies were quick to join China’s AIIB because it allows their own companies almost guaranteed participation in the AIIB’s lending projects—thus giving them a ‘leg up’, as they say, in their competition with USA and Japanese companies involving development and infrastructure investment projects in the EMEs. It also gives them, the British and the Europeans, the opportunity to redirect some of that investment capital to companies inside their own economies, where their own companies get to provide semi-finished goods and services to the infrastructure projects in Asia that the AIIB will approve with its initial (and no doubt soon to expand) $50 billion fund.

Indeed, Europeans have become increasingly frustrated with USA dominated World Bank and IMF, in which the USA typically vetoes decisions of those institutions that it dislikes with as little as 20% of the ‘voting rights’ in those bodies. At the same time, conservatives in the US Congress continue to refuse to provide the US’s share of the operating funds for those institutions. China’s AIIB enters the global infrastructure investment field with a promise by China not to veto and to hold no more than 49% of voting rights in the AIIB. It is an attractive alternative to the USA’s World Bank and IMF dominated bodies. Not surprising, Europe and other major economies are therefore seriously interested in participating in the AIIB. However, to the extent they do, it represents a waning of USA economic influence over its once, almost completely economically subservient allies.

The ‘Old Order’ of US Economic Hegemony

The USA’s dominance of the IMF and World Bank since 1945 has provided Washington with great leverage in influencing both political events and economic directions in emerging market economies (EMEs). Often multi-billion dollar lending projects are dangled before an EME, or threatened with suspension, if the EME in question fails to do the bidding of Washington involving a political decision Washington wants, or an investment concession Washington wants from the EME for a US bank or company.

A good example of the kind of ‘economic arm-twisting’ by the USA still going on today is the pressure exerted by USA government and courts to force Argentina to agree to terms demanded by USA shadow banksters with regard to the repayment of loans; or the moves underway by USA government and banksters to drain Venezuela’s currency reserves to effect a collapse of its currency, the Bolivar, to set off import inflation to set the stage for another coup and political intervention. Those are extreme, but not untypical, examples; countless ‘lesser’ forms of pressure on EMEs occur frequently by the USA through its control of decisions by the IMF and World Bank. Ukraine is another, perhaps more traditional example, where the USA has influenced the IMF to install US citizen, shadow bankers, like private equity CEO, Natalia Jaresko, to run the Ukraine’s economy as finance minister as a condition for the Ukraine receiving IMF loans.

But by providing an alternative source of infrastructure project funding, the China AIIB reduces potential USA economic and political influence over EMEs.
From 1944 to 1973 the U.S. maintained more or less total economic hegemony in the global economy. The U.S. dollar was the prime currency for trading and reserve purposes. This dominance was challenged in the post-1973 period briefly, however, as the U.S. economy experienced an economic crisis at that time. The institutional arrangements by which the U.S. retained dominance from 1944 to 1973 were restructured and rearranged. The U.S. economy and its world dominance was restored in a new set of arrangements and relationships with other states and economies starting in the 1980s, which is sometimes referred to as ‘Neoliberalism’. The symbol of that economic dominance, the U.S. dollar, after having seriously weakened in the 1970s was restored again to unchallenged status as the global currency in the 1980s and after.

But the restructuring of the global economy in the 1980s, led by the United States (and a junior partner the UK) has now run its course for a second time.

Once the unchallenged global currency, the U.S. dollar is once again facing challenge as the dominant global currency. US dominated global institutions like the World Bank and IMF are being challenged by alternative institutions, like the AIIB. The focal point of that challenge, today and in the years ahead, is China. The Yuan will not overturn or replace the US dollar tomorrow, or even in the near term. The World Bank and Asian Development Bank won’t be displaced by the AIIB. But in the longer term it is inevitable, should China continue to grow at its recent rates and the USA continue to lag with its recent below historic average growth rates.

Recent events surrounding the AIIB, and the IMF adding the Yuan to its currency mix, are just a subset of the broader and even more strategically significant rise of the Yuan as a global trading and reserve currency and of alternative institutions developed that break the hegemonic control of global economic institutions by the USA.

A Global Economic ‘Grand Game’?
…….

(for the remainder of this article, go to Jack Rasmus’s website, https://kyklosproductions.com/articles.html

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015, and the prior book’s, ‘Epic Recession: Prelude to Global Depression’, 2012, and ‘Obama’s Economy: Recovery for the Few’, 2012. He has been a local union president, negotiator and representative for several American unions. He blogs at jackrasmus.com.

This content was originally published by teleSUR at the following address:
http://www.telesurtv.net/english/opinion/Chinas-Bank–Waning-USA-Hegemony-20150328-0013.html. If you intend to use it, please cite the source and provide a link to the original article. http://www.teleSURtv.net/english

The following Alternative Visions Radio show of 3-28-15 second half hour addresses the topic, ‘Is Inter-Capitalist Competition Intensifying?’. The first half hour interviews director, Michael Albert, of the just launched radical online ‘Z School’, in which Jack Rasmus has agreed to teach a new course: ‘Finance Capital in the 21st Century’.

To hear the Alternative Visions show, go to:

http://prn.fm/category/archives/alternative-visions/
or:
https://alternativevisions.podbean.com

To access the Z school webpage for more information about its courses, go to:

https://zcomm.org/zschool/moodle

ALTERNATIVE VISIONS SHOW ANNOUNCEMENT:

Alternative Visions – Z-School Radical Online School Launched + ‘Are Inter-Capitalist Rivalries Intensifying? – 03.28.15

Mar 28th, 2015 by progressiveradionetwork

Jack Rasmus and Alternative Visions show returns to air with new shows. A two part show re-launches Alternative Visions today. In the first part, Jack interviews long time progressive activist, writer, journalist and educator, Michael Albert, of the ‘Z Collective’ to explain the new radical political online school being launched starting next week, called ‘Z School’. Z school is a new addition to the ‘Z’ media network consisting of ‘Z magazine’, ‘Znet’ global blog, and the recently established journalist reporting by Z writers for South America’s new tv network, ‘teleSUR’. Albert explains how Z School works, providing online practical, progressive, political education classes by long-term seasoned activists from around the world for interested participants. Low cost, lower cost, and no cost classes are available. If interested, more information on Z school, to start in April, is available by going to: https://zcomm.org/zschool/moodle . In the second half of today’s show, Jack discusses examples of growing inter-capitalist competition globally, now beginning to assume new, more aggressive forms as US, European, Japan, and OPEC countries and capitalists are now beginning to embrace more aggressive forms of competition with each other, as the slowing global economy forces them into ‘beggar their (capitalist) neighbors’ in an ever-desperate seeking of fading economic growth.

by Dr. Jack Rasmus, copyright 2015

published by teleSURtv English Edition, 3-24-15

Passage of the “Trans Pacific Partnership” (TPP) free trade agreement between the USA and 11 other pacific rim countries has been the number one economic priority of both political parties in the USA since last November 2014’s national Congressional elections. Concluding a TPP deal in 2015 is right up there — along with across the board corporate tax rate cuts — at the top of Corporate America’s “must have” list for this year.

But the window may be closing on concluding a deal. That’s why American trade negotiators are desperate for “fast track” authority to accelerate the effort to finish negotiations — before global developments force the window shut.

Republican and Democrat representatives and Senators in both houses of Congress in the USA, as well as the Obama administration, have been pushing hard for passage of the TPP since December 2012, when the most recent media-legislative campaign to pass a TPP deal was rolled out immediately following the presidential elections the month before.

The TPP-Free Trade USA push goes back even further, however, to at least 2010. That’s when Obama put Jeff Immelt, the CEO of the giant U.S. global corporation, General Electric, in charge of a special Presidential Committee tasked with coming up with recommending future USA trade initiatives. TPP was one of them.

But before acting on Immelt’s 2010 recommendations, Obama had to first wrap up the loose ends of the several bilateral free trade agreements still on the table between the USA, South Korea, Colombia, Panama and other countries. Then there was the 2012 presidential elections. Obama and Democrats knew trying to push the TPP through before would risk their re-election chances. So they waited. Then came the November 2014 midterm Congressional elections. Better wait again, since Democrats in Congress coming out for TPP might jeopardize union and consumer support for their re-election, and potentially cost the administration and Democrats their majority in the Senate — which they lost anyway due to many reasons.

But now, early 2015, the short term political risks are reduced and bilateral free trade agreements with the other countries have been completed. Now the majority of Congressional Democrats, nearly all the Republicans, and the Obama administration are all united on the goal of pushing through the most massive free trade agreement to date, called the TPP. How massive? No less than 40 percent of the world’s total annual GDP and a third of all global trade, that’s how massive.

U.S. Corporations and Corporate Parties United for TPP

The vast majority of members of Congress, in the House and Senate alike, don’t even know what’s being negotiated in TPP. Except for perhaps a few in-siders in both parties, virtually no one in Congress has any real information whatsoever as to the details of the current TPP negotiations. Only the trade representatives of the 11 countries and their invited guests, the representatives from global corporations, are privy to what’s being discussed in the 28 industry negotiating sessions.

Of the 566 groups that have been invited to attend the negotiations at various levels, 480 are apparently representatives of businesses, trade, and industry groups. The rest are pro-trade academics, a smattering of sympathetic NGOs that benefit from corporate contributions, and a few token union representatives in the pockets of their corporations or governments at home.

From what is known from the periodic leaks from the discussions, it appears proposals for TPP are heavy on permitting capital to freely and easily enter a country, for profits to be just as easily repatriated, for wholesale privatization of public enterprises, and for proposals to allow corporations to sue governments in global secret courts if national laws are passed that challenge any provision of the TPP — to name but the most corporate-friendly measures being proposed.

Even though there are apparently no provisions for Congress to receive progress reports on the status of negotiations, nevertheless a majority in Congress is about to vote in April in favor of TPP, and specifically on a strategic measure will increase the possibility of passage of TPP soon after. That vote and measure is called “fast track” authority.

Fast track means Congress agrees with the president’s negotiating demands before an agreement is struck, and then votes quickly on it once it has, voting yes or no, without any amendments or procedural delays in the legislation making TPP a law in the USA. In other words, if “fast track” passes, whatever the President’s trade negotiators agree on will quickly become law of the land. Corporate America in particular likes “fast track.” It means whatever anti-worker, anti-consumer, anti-environment and deals are agreed to at the negotiating table cannot be challenged, amended or reversed by Congress when the vote comes up.

“Fast track” passage in April will mean the push to conclude a TPP deal will accelerate and intensify in subsequent weeks. It means the path is politically paved to conclude a TPP deal asap. Passage of fast track is not the ‘endgame’, but it’s damn near close to meaning just that.

Recent USA history shows that a massive, free trade treaty like TPP can only be passed with the support of a Democratic president and Democrat support in Congress — just as Democrat Bill Clinton was essential for passing the previous USA free trade initiatives in the 1990s: the North American Free Trade Agreement (NAFTA) and opening up China-USA trade by proposing the Preferred Nation Trading Rights (PNTR) for China, a quasi free trade measure.

If another Democrat is elected president in 2016 — an unlikely but possible event — that Democrat will have to wait until 2018 or later to push for TPP. And if a Republican is elected president in 2016, it is likely that Democrats may not support TPP in Congress.

Corporate America does not want to wait that long for TPP, given either those events. It wants TPP now, not later. The political timing on the USA side is right, in its view, given the current party alignments in Congress, and with the current Democrat President, Obama, a strong, unequivocal advocate of free trade agreements like TPP since 2010. (In contrast to his election promises in 2008 when he said he would not support more free trade agreements). But there’s another reason “why TTP now.” They all know — corporations, Republican and Democrat politicians, and the Obama administration alike — that the longer they wait, the more unstable the global economy will continue to become, and thus the more difficult will become the concluding of a TPP deal.

Not only are internal U.S. political alignments the best in years. But the external global economic developments can only get worse over time. The U.S. side of the negotiations are in sync, with all the corporate and pro-corporate players agreed on doing a deal quickly. But the rest of the 11 TPP countries in negotiations will find it increasingly difficult to agree to a deal as time goes on, as their economies become more unstable and slow.

The Global Instability “Wildcard”

Time is not on the side of advocates of the TPP in the USA and they know they need to accelerate the process.

The global economy is slowly but steadily unraveling. Currencies are becoming more volatile. More economies are slipping into recession. Inter-capitalist competition is shifting and assuming more aggressive forms. Real investment is slowing everywhere. Trade in commodities, including oil, is collapsing in price and volume. Furthermore, these trends are going to get worse, not better, and will likely continue to do so in what remains of 2015-16. Only a short window may exist therefore this year, or early next at the latest, to conclude a TPP deal. Here’s why.

The quantitative easing (QE) programs of the two weak links today in the advanced economies — Japan and the Eurozone — are causing increasing global currency instability. And the more currency instability, the more complicated the negotiations for TPP will become, as well as the more difficult it will be to conclude a deal.

Japan set off the current deepening currency war in 2013 when it introduced its first QE. That had little to no effect on Japan’s real growth but it boosted stock prices for a while and then, like all QEs, even that dissipated. Japan fell into another recession, its fourth since 2008, during early 2014. So it increased is QE-liquidity injections last fall 2014 still further, as it expected the Eurozone to introduce its own QE, which the Eurozone did just recently.

Then there’s the matter of China. Not a party to the TPP negotiations, China’s general economic slowdown underway will undoubtedly result in China allowing its currency, the Yuan (reminbi), to decline as well, in order for China to boost its exports too.

So all three major regions — Japan, China, and Europe — are driving down their currencies to get a short term export (and economic growth) advantage. Unable to confront this ‘triple threat’ to their exports, many of the 11 Asian rim TPP countries are becoming desperate to increase their exports in response—as are most of emerging market economies in general worldwide. And where better to do that than to open and raise new demands and to request even more concessions from the USA in current TPP negotiations?

As their own currencies rise in value, and their economies slow, many of the 11 will also seek even more guarantees of USA to ensure direct investment into their economies. But with the U.S. dollar rising sharply, U.S. corporations also want and plan to invest heavily in the Eurozone and Japan economies. How will the USA assure the 11 TPP partners that U.S. corporations will invest even more money capital in their economies, when there are growing opportunities at the same time for even better investments in Europe and Japan, and of course China.

There’s also the matter of collapsing oil prices. This will undoubtedly complicate the energy track discussions in the TPP negotiations.

Then there’s the USA dollar and imminent U.S. interest rate hike policies. The rising dollar and U.S. interest rates mean capital outflows and even capital flight are high on the agenda for a number of the 11 TPP negotiating countries. Will the USA agree in TPP negotiations to lower the dollar’s value as concessions in TPP bargaining? Not likely, give the growing consensus to raise interest rates in the USA very soon, either this June or September at the latest, which will continue to drive up the dollar and in turn suck money capital out of many of the 11 other TPP partners in the form of capital flight and redirected investment. The TPP 11 will want to know what their USA partner is going to do about all this. They will want more concessions, in exchange for the USA demands for intellectual property and software products protections, patent protections, more opportunities for U.S. banking access to those countries, and so on.

There are literally dozens of other examples and ways that current TPP negotiations can, and will, be up-ended by the monetary policies of Europe, Japan China, and the USA. Global currency instability, falling exports, redirected global investment flows, capital flight, etc., will impact TPP negotiations significantly in the coming weeks and months as the global economy becomes still more unstable and continues to slow. TPP negotiations will become even more complicated, more time may be needed to conclude a deal, and the negotiations themselves may be suspended in part.

All of which does not bode well for concluding a deal long term. A deal must be struck quickly, in the shorter term, according to the Corporate view. All of which leads to the key to the entire process: the current rush to conclude fast track, to get a TPP deal as quickly as possible. For it is fundamentally for TPP negotiators a race against time, given the progressively deteriorating global economy.

The Politics of TPP

TPP is not only about U.S. multinational corporations getting a free entry into economies that make up a third of world trade and constitute 40 percent of world GDP. It is also about Obama’s, the U.S. military’s, and U.S. neocons “pivot” to Asia to contain China.

Without concluding the TPP, the USA’s ability to contain China on the economic front — a strategic necessity for its political and military containment goals for China — will unravel.

China is already causing the USA major concerns on a number of economic fronts. There’s China’s recently announced $50 billion development bank, designed to rival the USA-dominated World Bank. There’s Russia’s turn to deeper economic relations with China, especially with regard to oil and energy, which threatens long term to raise energy prices in Europe to unpleasant levels. There’s China’s deepening trade deals with Germany, making it already one of Germany’s prime trading partners; China’s buying of sovereign bonds in southern Europe to help bail out the Italian and other economies in that region; its targeting of east Europe and Baltic economies offering billions in new funding there to increase its influence; its negotiations with Greece to provide assistance (including buying the Piraeus port) as that country confronts its European bankers insisting on continuing austerity; and there’s the recent announcement, just days ago, that Britain — with its so-called “special relationships” with the USA — is breaking ranks with the USA and deepening its financial relations with China. The UK had already become the future currency trading hub for the China Yuan, as that currency challenges the US dollar long term. But now, in a surprise announcement, the UK has agreed to participate in China’s new global development fund as well.

If the USA fails to conclude the TPP deal, designed to contain China economically, it is likely that China will subsequently sweep up a good number of the 11 countries in current TPP negotiations into its own economic orbit and its own regional free trade agreement. Should that occur, the USA’s political and military pivot to Asia will be limited to Japan and South Korea.

Should TPP negotiations fail, much of South Asia, and potentially even Australia with its heavy dependence on raw materials and commodities trade with China, could adopt a more neutral economic position vis-à-vis China and the USA — instead of acting as pro-USA allies, as in the past.

Much is riding on the TPP, in other words, politically as well as economically, for the USA. That’s why U.S. trade negotiators are pulling out “all the stops,” as they say, to accelerate concluding a TPP deal. That’s why “fast track” is so important to them. Without it, “all the stops” don’t get pulled out. In short, so goes TPP, goes the USA “pivot”; and so goes fast track goes TPP. But in the end, as goes the global economy, so goes all the rest.

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015, and the prior book’s, ‘Epic Recession: Prelude to Global Depression’, 2012, and ‘Obama’s Economy: Recovery for the Few’, 2012. He has been a local union president, negotiator and representative for several American unions. He blogs at jackrasmus.com.

This content was originally published by teleSUR at the following address:
http://www.telesurtv.net/english/opinion/TPP-Trade-Negotiations-At-Critical-Juncture-20150324-0034.html. If you intend to use it, please cite the source and provide a link to the original article. http://www.teleSURtv.net/english

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