Archive for the ‘Uncategorized’ Category


Source: teleSUR

Last week, initial government released data for the 2nd Quarter 2014 showed the Eurozone economy coming to a complete halt. Germany’s economy—which represents a third of the Eurozone’s total GDP—declined by 0.2%, the first such contraction since 2012. So did Italy’s, while France recorded no growth at all for a second consecutive quarter.

The zero growth for the combined 17 Eurozone economies follows a near stagnation 0.2% growth in January-March. The January-June trend therefore strongly suggests a recession is now emerging in the core European economies—the third such in the past five years.

Europe’s first recession occurred in 2008-09 as it collapsed with the rest of the global economy. It then experienced a historically weak 0.5% economic recovery in 2009-10, only to fall back into another second recession in the subsequent 18 months that wiped out the prior meager 0.5% gains. 2013-14 thereafter saw an even weaker recovery of only 0.2%, and for an even shorter period, which is now being reversed once again.
The Eurozone arguably has never really recovered from the recession of 2008-09. The short, shallow recoveries of 0.5% and 0.2%, which have become progressively shorter and weaker, do not represent a true recovery. Europe has simply been “bouncing along the bottom” economically now for five years—stagnant at best and slipping in and out of recession.

An important new trend in the Eurozone’s now emerging 3rd recession is that the economic contraction is driven by the Eurozone’s key economic engines—Germany, France, and Italy—and not just its weaker economies on its southern and eastern periphery, as was the case in Europe’s second recession of 2010-12.

Together the three economies—Germany, France, Japan—represent approximately $8.8 trillion in GDP terms. That’s at least the size of China’s economy and much bigger than Japan’s. The three core economies of the Eurozone are thus key to growth and recovery of the global economy in general, as well as to emerging markets in particular since 56% of Germany’s nearly $4 trillion economy is derived from exports. So go German exports, goes Germany; and so goes Germany, goes the Eurozone and, in turn, many of its emerging market trading partners. And Germany’s export driven economy is facing significant further headwinds in the near term.

The USA engineered coup in the Ukraine earlier this past February, and the subsequent USA driven sanctions on Russia ever since, have already begun to have a significant additional impact on Germany’s exports, as well as other Eurozone and EU economies like Italy, Finland, Austria, and East Europe.

With little to lose economically itself from imposing more severe sanctions on Russia, in contrast the Eurozone and EU economies which have much to lose, the USA has continued to push hard for more Russia sanctions from Europe, the effects of which are now beginning to take a toll on the already weak Eurozone economy. The impact of those sanctions on the Eurozone, and Germany-Italy in particular, will no doubt continue to grow in the coming months, thus further ensuring that Europe slides into its 3rd recession.

The impact of sanctions on the Eurozone economy is measurable not just in terms of quantifiable goods (exports-imports) and money capital flows between Europe and Russia, but also in the more difficult to quantify psychological effects on investment as a result of the continuing crisis in the Ukraine and sanctions.

Political crises have economic effects, even though difficult to trace directly to GDP and economic growth. But psychological forces in business and consumer confidence trends are a factor nonetheless, and are now also playing a role pushing the Eurozone into recession.
Apart from the trade and psychological effects of sanctions, demands on Europe in the near future to provide further bailouts for the Ukraine’s now collapsing economy will contribute still further to the recessionary slide of the big three Eurozone economies.

The Ukraine’s currency has fallen 60% in 2014 and much of the IMF and EU $18 billion deal last May has already been earmarked for $6 billion payments to Euro banks for previous bailouts. More of that $18 billion will be used by Ukraine’s central bank to finance exports and to offset its currency decline. Little therefore remains of the IMF’s initial $18 billion bailout package to stimulate Ukraine’s real economy. As this writer predicted last March, the Ukraine economy will contract 10-15% in 2014 and will need an eventual $50 billion in bailout funding from the west. But with the IMF not likely to provide a further bailout anytime soon, and the USA providing only token financial assistance, the Europeans will be faced with providing further Ukraine bailouts.

The continuing Ukraine crisis and the burden of providing still more bailout will further depress economic sentiment in the Eurozone’s core economies.
In addition to the preceding negative forces, there’s the Eurozone’s own more fundamental problems which are deep and remain still unresolved: i.e. little or no improvement in the region’s record level of unemployment; the lack of real wage growth to stimulate consumption; private banks continuing to hoard money and not lend; and business investment and confidence drying up.

On the policy front the Eurozone still appears committed, nevertheless, to a monetary policy that has not only failed in Europe, but in the USA and Japan as well: i.e. still more liquidity injections by the European Central Bank (ECB) into the private banking system, accompanied by a policy of austerity on the fiscal side that has been modified only slightly less severe in recent years.

The ECB’s monetary policy to date has been to inject more than $1.5 trillion of liquidity into Euro banks, primarily by means of its LTRO program—a program in some ways similar to quantitative easing (QE) by central banks in the UK, USA, and Japan. This primary reliance on monetary policy as the road to recovery thus echoes the USA Federal Reserve, Bank of England, and Bank of Japan’s similar policies since 2009. All the central banks of the advanced economies (AEs) have introduced near zero interest rates, while implementing additional ‘quantitative easing’ (QE) direct central bank purchases of investors’ bad assets at subsidized prices.

But in all cases, none of the AE central bank monetary injections have had much positive effect on AE real economies. The banks have mostly hoarded the injections, not lent investment capital in any substantial amounts to businesses that would produce jobs, and instead have redirected the liquidity to financial speculation that has fed new financial asset bubbles worldwide. In other words, whether QE-LTRO or zero rates, the effect has been the same: financial asset inflation on the one hand, and, on the other, tepid or stagnant real growth, a drift toward deflation in real goods and services, little or no job creation, and repeated bouts of real economic stagnation and/or recessions .

More liquidity injections by the ECB in whatever form, including a Euro-QE, will therefore not halt the Eurozone’s slide toward its third recession, nor its steady drift toward price deflation in the real economy. At the same time, the real and psychological effects of sanctions and the Ukraine crisis, the problems in bank lending, weak job creation and wage growth, and flattening business and consumer confidence, will continue to deepen the Eurozone’s economic contraction and drift toward deflation in 2014.

Dr. Jack Rasmus
copyright 2014

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Economic reports of the past week show Europe, including Germany, descending again into recession; Japan’s GDP collapsing by 6.7% in the 2nd quarter; and China adding a 3rd stimulus in as many years to prevent slowdown.

Nonetheless, the hype in US press continues that US ‘recovery’ is happening.

For an explanation why not, and why the US economy will remain on its stop-go economic trajectory and barely grow 1% in 2014, listen to Dr. Jack Rasmus’s radio show of August 9 below.


Dissecting the US 2nd Quarter 2014 GDP – 08/09/14

Dr. Jack Rasmus takes a detailed look behind the numbers for the advance release last week of the US 2nd Quarter GDP. Is the economy really growing at a 4% annual rate, after having fallen -2.9% in the first quarter 2014? How much of the US GDP numbers are due to statistical redefinitions and revisions converging this summer? And how much is due to ‘real’ trends? Why is the US GDP now becoming so volatile, with big swings quarter to quarter—which nonetheless average out to a subpar historical 1.8% or so growth rate long term?

Dr. Rasmus looks at the main determining categories of US GDP over the past 12 months, in addition to the most recent 2nd quarter 2014. He concludes big swings in business inventories, consumer credit based spending (especially for auto securitized subprime loans) and volatile ups and downs in government spending and net exports lay behind the continuing ‘stop-go’ of the US economy. Big swings in business inventory investment, in anticipation of consumer spending recovery that proves quickly unsustainable, accounts for much of the GDP volatility over the past year—not the weather. Explanations why inventory investment, US exports, household durable goods consumption, and local government spending that occurred in the 2nd quarter will not be sustained going forward are offered.



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News this past week has revealed the Eurozone’s economy has descended officially once again into recession, the third recession since 2008, and this time with former northern europe economies, Germany-France-Italy, at the forefront of the decline.

While last May 2014 the official hype was that Europe had definitively recovered from recession, Dr. Jack Rasmus presented a contrarian view that it in fact hadn’t and was headed for a further slowdown.

Listen to Dr. Rasmus’s hour radio show of this past June 24 on the Europe economy, and his predictions at that time of the region’s imminent economic 3rd recession, which is now become apparent.

Access the June 24 radio show on Europe at:


Tune in to Dr. Rasmus’s upcoming Alternative Visions show on Saturday, August 23, at 1pm eastern time, as he reviews his economic predictions issued last summer, 2013, and provides provides new predictions for 2014-15.

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Over the past year I have been interviewing union veterans on my Alternative Visions radio show—all of whom have decades of union experience going back to the 1970s and before. These veterans have seen the transformation of union power in the USA, from a time when it existed to its recent rapid decline.

Yours truly is also, to some extent, of their generation and experience. And like the union veterans I’ve been interviewing, I have been thinking intensely the past decade about why the deterioration of union influence in the USA since the 1970s has occurred and what might be done to stop and reverse it.

To sum up their—and my own—views on the subject, I have written a series of extended articles for the new Latin American media outlet, teleSUR, which has just launched an English language edition of its blog. Attached here to this email are the first two of a projected 4-part articles series on the topic ‘Are American Unions at a Strategic Impasse?’

Parts 1 and 2 of the series attached are subtitled ‘Dimensions of the Crisis’ and ‘Three Contemporary Examples’. Part 3 to soon follow on the teleSUR blog is subtitled ‘American Union Veterans Speak Out’. It will summarize verbatim some of the more important comments of union guests I’ve interviewed on my weekly radio show, Alternative Visions, over the past year since last November 2013. (for archives of the interviews, go to http://prn.fm/shows/alternative-visions/ , starting with the September 19, 2013 show with union veterans, Steve Early of the CWA and Carl Finamore of the Machinists, and our discussion of last year’s AFL-CIO union convention. Show archives are also available on http://www.podbean.alternativevisions.com )

In Part 4, the final piece in the series, I will share with you my own views, developing over the past decade, of what changes Union Labor in the USA needs to undertake in order to stem the current tide of declining union membership, effectiveness, and some ideas of what might be needed for US unions to restore their once significant level of economic and political influence in the US.

I certainly don’t have all the answers to the critical issue of the decline in Union power in the USA today. But it is hoped the series and comments by myself and others will start a much needed discussion among unionists AT THE LOCAL UNION LEVEL about what needs to change in union strategies (organizing, bargaining, industrial action, political action), if union labor in America is to avoid a virtual total destruction in the coming decade, which I fear is a not impossible outcome.

The first two parts of this extended essay are now available at the author’s website at:


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For two recent articles, written for the new teleSUR English publication in South America, on the growing negative impacts on real economic growth and financial instability in Emerging Markets economies, read my latest entries on my website entitled:

‘Is the Center for the Global Economic Crisis Shifting to Emerging Market Economies?’ and ‘The U.S. Federal Reserve vs. Emerging Market Economies’.

Access the articles at:


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Is the chronically stagnant US economic recovery since 2009 (predicted in my 2010 book, ‘Epic Recession: Prelude to Global Depression’), the result of insufficient income growth for most households—that is then necessary to stimulate consumption demand that, in turn would result in real investment that would create jobs? Or has the escalation of financial asset prices since 2009—itself the consequence of $10-$15 trillion of Fed and central bank liquidity injections— resulted in lower real investment in the US and thus the failure of job and income growth?

To restate more simply: does the lack of wage and income growth determine real asset investment; or are the expanding opportunities for more profitable financial asset speculative profits globally driving the decline of US real asset investment (and thus jobs, wages, and income growth)?

Which is the more primary causal relationship? If one believes lack of income is the primary cause of declining real investment today in the USA, then the solution is simply to raise wages and income of households that typically spend by whatever means—tax cuts, subsidies, etc. The problem is simply an insufficient level of income.

But what if, alternatively, it is not income that determines real investment, but rather the addiction of investors to financial asset speculation and investing that is the main determinant of slowing real asset investment?

If the latter is primary, then simply raising wages and incomes alone will not necessarily ensure real investment returning to historical levels in the US economy. That is, the determinants of real asset investment lay just not with inadequate income growth in the US, but with the expanding and more profitable financial investment opportunities in a 21st century finance capital world in which investors are increasingly addicted to financial asset speculation forms of investment.

This is a critical distinction that mainstream economists fail to understand (and some ‘left’ economists only partly understand). It is important because merely boosting wages and incomes of median and below households will not, by itself, generate sustained real investment and recovery in the US economy. That’s a Krugman-Reich-Stiglitz notion. It is also a classical ‘underconsumptionist’ argument that those who follow Marx should know Marx himself rejected unequivocally.

Sustained recovery requires direct investment, not just a rise in consumption income that hopefully might convince capitalists to again reinvest in the US (or not convince). So the problem is not merely a lack of income growth to stimulate investment. US capitalists are investing–just not in real asset investment and not in the US. They are investing in emerging markets, and even more so in financial asset markets globally (which are now more numerous, liquid, and available than ever before due to the creation of an unregulated global shadow banking system). That’s where the Fed’s $15 trillion money injection is going (some of which is also just being hoarded on balance sheets, of course).

The more fundamental problem is that finance capital has changed. Raising incomes of workers and middle class Americans will help recovery somewhat, but not all that much. It will not result in sustained economic recovery any longer. It is therefore not the main solution to the long term economic stagnation that the US has been experiencing since 2009. Capitalist profit opportunities are simply greater offshore in EMs, and in financial asset markets, than they are from making goods and services in the US, even if US workers were able to buy those real goods and services if they had more income.

Neither mainstream liberal economists, nor even many US Marxist economists, understand the differences, or the important mutual causal relationships between financial asset investment and real asset investment, which is key to understanding today’s long run global economic stagnation trends in the US, Europe, and Japan ‘heartland’ of the global capitalist economy.

To argue simply for wage and income growth as the solution to a chronic stagnant US economic recovery—as Krugman and colleagues do for example—is to assume that capitalist enterprise will redirect itself from more lucrative profit opportunities from financial speculation and in offshore markets, back to less profitable real production of goods and services in the US. They won’t to any significant extent, since rates of return in the latter are significantly less than in the former.

The only real solution to a sustained US recovery is for massive public government investment, that then subsequently creates income. Investment precedes income creation, it does not necessarily follow it any longer in a world of 2st century global finance capital. Just calling for income growth (via minimum wage hikes, more low pay contingent job creation, tax cuts, or whatever) will not necessarily result in a rise in US-based investment if Capitalists continue to shift to more profitable financial speculation offshore; public investment on a major scale must therefore occur prior to income growth in order to generate a sustained recovery.

Krugman and his neo-Keynesian colleagues don’t understand this essential error in their analysis. They simply believe all forms of consumer demand stimulation are the same. Only the aggregate amount matters. (which, by the way, Keynes himself did not maintain, so they aren’t even really Keynesians at all).

Neo-Marxists should beware of this idea that ‘simply raising wages and incomes is the solution to economic recovery’. They should understand that the financial bubbles being created again around the world are not a consequence of declining real asset investment but are a cause of it. They should beware of slipping into an argument of promoting dead-end underconsumptionism in its many variant forms.

In today’s world of 21st Century Global Finance Capital, don’t expect capitalists to invest in real production and thus jobs and income in the US economy as they did decades ago. They are too busy making greater profits offshore and in financial asset speculation, leveraging the trillions of dollars of free money and credit created for them by the Federal Reserve. If real investment in the US economy is ever to return, it will have to come via major public investment initiatives. And if not, expect chronic real economic stagnation to continue, as has been the case since 2010.

Dr. Jack Rasmus
Green Shadow Cabinet Federal Reserve Chair
July 26, 2014

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by Dr. Jack Rasmus, copyright July 2014
Source: teleSUR English
July 14, 2014
(Written for teleSUR English, which will launch on July 24)

“As the military crisis in the Ukraine has intensified with the fall of key rebel cities, like Slavyansk and Kramatagorsk, and as new decisive conflicts for the capitols of Donetsk and Lugansk regions are about to take place, in the West some are beginning to ask why Putin has not more directly intervened on behalf of the rebels in the eastern breakaway regions? After initially having mustered Russian forces on the eastern border of Ukraine late last winter, why has Putin pulled back and ordered them to ‘stand down’?

When the Ukraine crisis entered a new stage last February 2014, the question of the day five months ago was ‘would Putin and Russia’ directly intervene militarily’? Today the key question has become ‘why hasn’t Putin intervened’ and ‘why does it appear increasingly that he will not’?

Over the past decade, the USA built up its support among proto-fascist elements on the ground in the Ukraine, funding these forces to the tune of a US admitted $5 billion. It then elbowed aside EU negotiators and intervened directly last February, when it appeared the European Union was about to strike an economic deal that was not politically aggressive enough in the USA view.

The USA has clearly wanted political regime change all along, not just a favorable economic deal with Ukraine. The so-called ‘Orange Revolution’ initiated a decade ago had succeeded only in part in breaking the Ukraine from the Russian economic and political orbit. The Ukrainian crisis of 2013 offered a new opportunity to complete the unfinished political task of the Orange Revolution. But the Europeans, mired in their own economic problems, were not interested in taking the lead.

In her publicly much quoted statement. ‘fuck the EU’, made last February on the eve of the coup by the USA’s leading diplomat on the ground at the time, Virginia Nuland, the USA clearly assumed direct control of the Ukrainian intervention from the Europeans. The European Union, together with the European-led IMF, would henceforth be left to negotiate the economic bailout with the Ukraine. But the USA would now drive the political policy.

The dichotomy between the USA and the EU that erupted into full view with the February 2014 coup in Kiev, when the USA took charge ‘on the ground’ is still evident today: Since the May 2014 Ukrainian parliamentary elections the USA has continued to push for harsher economic sanctions against Russia while directing the new Ukrainian Poroshenko government to undertake more aggressive military action in the eastern regions of the Ukraine. In recent months, moreover, it has become further clear that USA military, CIA , and no doubt USA special forces advisors have been calling the shots on the ground militarily for the Poroshenko government. USA advisors have been flowing steadily into the Ukraine since last May. And shifts concerning Ukrainian military tactics and strategy against the eastern regions in recent months have almost always coincided with high ranking US politicians and USA-NATO military personnel visits to the Ukraine.

In contrast, the EU governments have been trying to keep the economic sanctions against Russia limited to select individuals instead of entire economic sectors in Russia, as the USA has proposed, while calling for a ceasefire and immediate negotiations between the parties.

Given the aggressive USA political policy toward the Ukraine today, the question is: ‘ Why has Putin not responded more aggressively to the threat of the now potential severing of the Ukraine from Russian economic and political interests’? Why has Russia not militarily intervened to date and appears, with every passing week, even less likely to do so?

The possible answers to Russia’s cautious, measured response to USA aggressive political and military policies in the Ukraine are several:

(For the remainder of this article, go to the author’s website, at


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Alternative Visions Radio Show – New York City Railroad Workers & the Future of American Labor – 07/12/14

Jul 12th, 2014 by progressiveradionetwork.see the urls for download of this show below:


“Jack Rasmus invites guest, Chris Silvera, Secretary-Treasurer of Teamsters Local 808 in New York City, to discuss the current struggle of New York City’s Long Island railroad (LIRR) workers for decent wages and benefits and their possible strike on July 20 that could shut down New York City, stranding 700,000 commuters into the city from the Long Island and the ‘Metro North’ rail-lines. Jack comments how the LIRR negotiations today are a microcosm of management’s successful anti-labor core bargaining strategy of the past 20 years: i.e. a strategy in which previously hired workers are given token wage increases just sufficient to pay for rising health care premiums, deductibles and copays—while new hires and younger workers’ wages are reduced and their healthcare cost contributions are raised. Chris explains management’s latest proposal to LIRR workers—who haven’t had a wage increase in 5 years—is a 2% annual wage increase for current hires, to pay for their rising out of pocket healthcare costs, while new hires will have wages cut 4% and their benefit contributions increased another 4%. LIRR unions and workers vow to break the 20 year pattern of making new, younger workers pay for existing members token wage gains and benefits maintenance, in what promises to be an important effort to break from the past. Meanwhile, railroad workers appeals to Democratic Party politicians in the city, to New York governor, Cuomo, and to Democrats in Congress to intervene are being ignored, as politicians run the other way revealing the ‘dead end’ of labor’s political strategy of recent decades.

In the second half of the show, Chris and Jack discuss how the LIRR negotiations represent a bigger picture of the growing ineffectiveness of traditional union strategies—both bargaining and political. Chris notes a new kind of ‘McCarthyism’ prevailing in unions today, where militant and radical rank and file workers no longer run local unions and have been replaced by what he calls ‘staffism and intellectuals’. Jack discusses the ‘legal web’ that has arisen in recent decades that has given national and regional union leaders excessive legal and political intervention power over local unions, and how the power and independence of local unions must be restored and raise if change is to occur. Jack concludes that restoration will require,however, structural change and new organizational forms at the local union level.

To access and download this radio show, go to:


or to:


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First published by http://www.telesurtv.net/english

“Since late 2012 the global economy has been in the process of a long term economic slowdown—in terms of real productive investment, global trade, productivity, as well as other key economic indicators. That slowdown appears irregular over the short run, with some months and quarters up and some down, but a longer term slowing trend is evident nonetheless.

Concurrent with the long term real economy slowing, conditions for a new round of financial instability and a new financial crisis have continued to build globally as well.

Moreover, both the slowing global real economy, and the forces building toward yet another global financial crisis, appear increasingly concentrated in the emerging markets sector of the global economy.

In the following Part 1 of the two-part series on the growing economic problems and instability in emerging market economies, the analysis focuses on how the advanced economies of the USA and Europe are in the process since 2013 of ‘exporting’ their failed economic recoveries to emerging market economies. In Part 2 of the series to follow, analysis will focus on the causes behind the rapidly rising debt and financial instability in the emerging markets economies, including China.

Since the financial crash of 2008 and the global great recession that followed, the global economy has evolved through several stages or phases. The first stage or phase was the general financial crash and deep real economic contraction that occurred worldwide during 2008-09. That crash was centered in the economies of the advanced economies (AEs)—US, Europe, and Japan. The AE-centered crash initially dragged down all the major economic sectors of the world economy in its wake, including initially China and Emerging Market Economies (EMEs).

The second phase, from 2010 to early 2013, was characterized by a dual condition: China and EMEs recovered quickly and robustly beginning 2010, while the AEs either slipped back into multiple recessions or more or less stagnant economic growth.

In the second, 2010-12 phase of the global economy, China and the EMEs economic trajectories differed from the US and AEs due to several factors: first, they were not at the center of the financial crash and they were able to significantly stimulate their economies fiscally to produce real productive investment; second, money and credit was quickly made available from both internal and external sources to enable their real investment, expansion, and recovery. China and EME’s therefore experienced a ‘V-shape’ rapid recovery between 2010-12. China and several major EME economies grew at double digit annual GDP rates, and most other major EMEs in the 5%-10% GDP range during the second phase period.

During the same period, however, Europe experienced a bona fide double dip recession in its real economy. Japan fared even worse, experiencing a triple dip recession from 2010 to 2013. Meanwhile the USA economy experienced weak economic growth, which included three bouts of ‘economic relapses’, defined as a single quarter collapse in GDP to zero growth or less.

Relapses occurred in early 2011 and late 2012 in the USA, which narrowly averted slipping into double and triple dip recessions similar to that which impacted Europe and Japan from 2010-13.

This second 2010-2012 phase—characterized by the AEs slipping in and out of recession and near recession while China and EMEs experienced a robust recovery—reflected a global capitalist economy that did not fully or fundamentally recover from the crash of 2008-09. The sharp crash and contraction of 2008-09 merely morphed into a new form during 2010-12, i.e. of continuing long term economic stagnation in the AEs amidst robust growth in China and the EMEs.

Beginning mid-2013, however, the ‘dual’ character of the second phase began to reverse, with China and the EMEs dramatically slowing in terms of real economic growth, as the AEs recovered from recession in early 2013 in both Europe and Japan and began to grow moderately at 1%-2%, and as the USA 1.7% average GDP growth since 2010 rose to a 3% plus GDP rate in the second half of 2013.

In contrast, China’s growth rate began slowing in 2012, from double digit 12%-13% GDP rates to an official 7% in 2014, which many economists consider overestimated and really at 6% or even slightly less. China’s economy has slowed to 7% or less, moreover, despite two rounds of fiscal stimulus in early 2013 and again early 2014. Other EMEs like India, Brazil, Mexico and others— growing well beyond 5% annual rates in the second phase—now slipped beginning 2013 to low single digits percentages at best, while South Africa, Russia, and other EMEs slipped into mild recessions.

There is thus, beginning circa mid-2013, a distinct reversal underway in the global capitalist economy. Once rapidly growing EMEs are now slowing, and once stagnant and declining AEs now stabilizing or even growing at low annual rates instead of experiencing recessions or stagnation. The net result, however, is a still further slowing global economy.

This can be seen in the data for global trade, which declined significantly by late 2013 and even more in 2014. Compared to the first quarter of 2013, world trade in early 2014 rose a mere 1.5% compared with the year earlier. Similarly, global business spending trends show that the 1% decline in global capital spending by corporations in 2013 is projected to continue to decline another 0.5% at least in 2014. As the ‘reversal’ occurs and the third phase of the global economic crisis emerges, the overall global real economy will continue to slow as well.

It is important to understand why this second 2010-2013 phase dual growth scenario has ‘shifted’ or reversed as the global economy now enters a third stage? And also to understand why modest growth in the AEs is about to occur at the expense of a slowing of growth in the EMEs?

Here’s a brief summary answer to these two important points:

When the financial crash and deep contraction of the first phase of the global crisis occurred 2008-09, the US central bank (the Federal Reserve) and the Bank of England quickly injected tens of trillions of dollars and pounds into the global banking system to stem a deeper and more profound collapse. That injection occurred in the form of special auctions, setting private bank borrowing rates at near zero, and by the central banks buying up bad investments from banks and private investors by printing money, a program called ‘quantitative easing’ (QE).

Together these various central bank measures injected conservatively somewhere between $10-$20 trillion in virtually free money into the private banks, both commercial and ‘shadow’ banks. The massive money-liquidity injection effectively ‘bailed them out’. Meanwhile, Congress and the UK Parliament injected further stimulus into nonfinancial corporations by means of tax cuts, subsidies, and other measures. The former bank bailout was supposed to stimulate bank lending to businesses and consumers in order to stimulate the real economy in turn. The legislative measures were supposed to stimulate business and consumer spending. Neither had the intended effect. The AE economies consequently stagnated.

What happened instead was the massive liquidity injections, targeted to both bank and non-bank corporations, were either hoarded as cash on AE bank balance sheets, or invested offshore in EMEs commodity and infrastructure expansion projects, or invested in financial bond, stock, foreign exchange currency, and other securities markets offshore in the EMEs.

In other words, instead of stimulating the AE economies, massive money capital flows went offshore from the AEs to the EMEs stimulating business investment in EMEs in commodities, infrastructure, and other goods producing sectors, as well as in the financial markets of the EMEs. At the same time, as China introduced its own massive 15% of GDP fiscal stimulus package in 2009, thereby boosting its own growth to double digit levels, China demand for EME commodity exports and goods exports escalated as well. The combined money in-flows to EMEs and demand for their products by China and other EMEs, resulted in the robust double digit growth of EMEs in the second phase, 2010-13.

As quantitative evidence of this process, whereas money capital flows into EMEs before 2010 never exceed a cumulative $400 billion, beginning in 2009 money capital inflows to EMEs escalated quickly to $1.5 trillion by 2011 and to $2.5 trillion by 2013. EMEs benefited doubly by developments in the second phase of the global crisis: from the massive money inflows and investments from the central banks, private banks, and investors in the AEs, on the one hand, and from China’s stimulus of 15% of GDP in 2009-10 that resulted in its own record double digit growth and therefore demand for EME exports.

But by 2013 this had all begun to fundamentally change, i.e. to shift and reverse. In the late spring of 2013 it became clear to AE central banks, the Federal Reserve and the Bank of England especially (and to the European Central Bank and Bank of Japan which initiated their own ‘liquidity injection’ policies later in 2012 and 2013, respectively), that massive money capital injections saved their private banking systems—but that same multi-trillions of dollars of liquidity injections did not stimulate their real economies.

Moreover, central bankers were becoming increasingly aware that the tens of trillions of dollars of their liquidity injections from 2009 through 2013 were stimulating financial asset bubbles in their own AE economies—especially in stocks, junk bonds, housing once again, leveraged loans, and CLOs and other derivatives. It also became increasingly clear to AE central bank policy makers that it was not necessary any longer to pump more money capital into their banks. It was perhaps more effective to ‘recall’ the money and liquidity that had previously been provided to AE banks, but had in turn been diverted by those same banks to EMEs and offshore economies, offshore financial markets, and offshore tax havens by AE investors and businesses.

The decision by the Federal Reserve was therefore in early summer 2013 to announce it would soon reduce its QE money injections and consider raising interest rates. Just the announcement that it would consider such action resulted immediately in reverse money flows from the EMEs back to the AE economies.

Capital flight starting flowing out of the EMEs in the summer of 2013 at an alarming rate. EME currencies began to rapidly decline as a result. Investment in-flows into EMEs began drying up. EME stocks and bonds plummeted. Exports slowed. And inflation in imported goods into EMEs rose.

In response to growing capital flight, falling currencies, and declining foreign investment, the EMEs quickly raised their domestic interest rates to stem all the above. It helped some. However, the response of higher domestic interest rates resulted in a slowing of their own domestic economies. And slower EME growth translated into slower global economic growth, as prior referenced data on global trade and capital investment showed.

The capital flows back to the AEs, however, meant a new source of demand for AE stock and bond markets. Foreign reverse cash inflows boosted US and UK stock markets, junk bond markets, and foreign exchange trading in particular to new heights. Money returning also flowed into housing and real estate markets, which experienced a brief modest recovery in the US in 2012-13 and a more rapid growth in the UK, in London property markets in particular.

Somewhat ironically, AE central banks’ 2013 decisions to reduce direct money injections via reducing QE actually served to increase liquidity in the AEs. Pulling back money capital from the EMEs to the AE economies actually stimulated select sectors of AE economies, like real estate. But that same reversal of money capital flows also served to reduce economic activity and growth in the EMEs as well. Growth would be stimulated in the AEs, but at the expense of growth in the EMEs.

However, the process proved initially too disruptive in the early summer of 2013, when the Federal Reserve first mentioned plans to reduce QE and later raise rates as well. The contraction and disruption in the EME economies was occurring too rapidly. The USA Federal Reserve therefore announced quickly a turnabout in July 2013, indicating that it was not really planning to raise rates or reduce QE. The EMEs crisis abated: capital flight slowed, currencies recovered lost value, and EME economies stabilized as well.

The Fed then announced once again in late summer 2013 that it planned to slow its QE injections; EME instability returned. The Fed retreated a second time temporarily in the fall of 2013 as the US Congress’s government shutdown and risks of government bond defaults rose as a possibility. Fed monetary policy and QE was sidelined. After having passed, by year end 2013 thereafter the Fed began its policy of reducing QE injections slowly over coming months. EME instability was on again. And so it has gone ever since over the course of the past year, off and on, on and off, as monetary policy of AE central banks continues to shift and reverse.

What is clear is that the long run policy direction in the AEs, in particular the USA and UK, is to ‘recall’ capital from the EMEs in order to re-stimulate its own inadequate economic recoveries to date. The initial liquidity injections since 2009 have served their purpose: they have more than bailed out the AE banks, commercial and shadow banks alike. They have sent AE stock and bond markets to record heights and profitability for investors. They provided the massive infusion of money capital into EMEs that produced historic offshore investment and profit opportunities for AE multinational companies.

In recalling and bringing money capital back to the economies of the US, UK, Europe and, most recently, Japan the global money capital flow reversals are simultaneously slowing the growth of the EME economies. This long term process is not occurring uni-linearly. It is occurring with stops and starts, temporary reversals, and tactical delays designed to dampen the negative impact too quickly on the EMEs.

But the longer term direction is clear: led by their central banks, the AEs are in the process of ‘exporting’ their own five year long stagnant and low growth to the EMEs. As the central banks tighten monetary policy (reduce QE, raise rates, etc.) the EMEs will now grow more slowly as a consequence of capital flight, currency decline, slowing foreign direct investment into their economies, rising inflation, and slowing exports.
EMEs that are especially dependent on exports for growth will be more quickly and more severely impacted by the emerging reversal in global capitalist policy, as the global economy enters its ‘third’ phase or stage more completely in 2014-15. The locus and weak link in the global capitalist economy is thus shifting—from Europe, Japan, and even the USA—to the EMEs. More future volatility in EME financial stock, bonds, currency, and other financial markets will be another outcome.

(Next: In Part 2, how rapidly rising debt in EMEs is also raising financial fragility and instability in EMEs and their financial markets, shifting the likely locus of a future financial instability event and possible financial crash to the emerging markets as well).

~ Dr. Jack Rasmus serves as Chair of the Federal Reserve on the Economy Branch of the Green Shadow Cabinet.

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Alternative Visions Radio Show, June 28, 2014

Dr. Jack Rasmus continues his analysis of the growing influence and instability in the global shadow banking system, including a look at the major role being played by shadow banks in China today.

Rasmus explains how shadow banks have been behind the historic $5 trillion in China municipal and provincial real estate (commercial, residential, industrial) debt boom since 2008 and China currency speculation.

Rasmus provides a deeper historical analysis of shadow banks in US depressions since the 1830s, and the parallels with China today. Continuing a key point from last week, its not just the shadow banks as institutions, but the ultra high net worth investors globally—the new financial global elite—that are behind the new financial instability building in the global financial system again. Shadow banks + Ultras + proliferating liquid financial asset markets and securities traded in these markets are at the heart of the next debt-deflation-default nexus.

Rasmus argues that money capital flows in a capitalist system cannot be effectively regulated long term, and that’s why financial crises keep returning. The bigger the liquidity explosion, the greater the debt and financial speculation, and the more frequent and greater magnitude the financial crises.

Dr. Rasmus concludes the show with an indepth look at the composition of the just announced -2.9% decline in first quarter US GDP, and debunks the mainstream view that the -2.9% was due to the ‘weather’ and that the US economy and GDP will soon ‘snap back’ with a 4%-5% GDP growth rate, as now touted in the mainstream business press. Jack shows how business inventories, net exports, and consumer spending will continue to fare poorly, or modestly at best, in coming quarters—and that the US economy will continue its ‘stop-go’ economic trajectory that is characteristic of an epic recession and its aftermath.

Access the archive of this radio show at:


or at:


NOTE: Disregard the incorrect title posted for the show (Not on Syrian War but on Shadow Banks and GDP). The announcement and content are correct–on shadow banks in China and US GDP

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