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Fast food workers fighting for a living wage. The new civil rights movement fighting police brutality and for “black lives matter.” Immigrant workers and their families fighting for citizens rights they have earned but are continually denied. Teachers fighting against union busting charter schools and defending their pensions and the right to bargain from constant right wing attacks. Public workers resisting Koch brothers funded ‘open shop’ initiatives in a dozen States, designed to destroy their unions and collective bargaining rights. Minorities and allies defending against conservative legislators in North Carolina and elsewhere attempting to deny them their right to vote. Environmentalists confronting the escalating poisoning of US water and air from shale fracking. Seniors and retirees opposing efforts to deny social security disability benefits and legislation in Congress to raise Medicare doctor costs. Independent truck drivers fighting federal laws that prohibit them from unionizing.

Contingent, part time faculty everywhere in colleges across the USA organizing to secure a decent wage that finally pays above poverty levels and provides a semblance of job security beyond semester to semester employment. Union workers in manufacturing, locked in a desperate last ditch effort to prevent a new Asia-U.S. free trade agreement that will mean millions more lost jobs. Citizens from all groups and classes working to pass a constitutional amendment to reverse the US Supreme Court’s blank check to billionaires to buy politics. The list goes on, and on… and on. Resistance is everywhere in the U.S. at the grassroots. But the gains are few. It’s like 1932—i.e. after the crash but before the storm. So why so little to show for so much effort?

In 2008 many placed their hope in the faux-progressive presidential candidate named Obama. He certainly talked the talked. His advisers ran one of the slickest PR campaigns in modern US history. After eight years of ‘fist in your face’ corporate rule under George W. Bush, many were desperately ready to believe whatever Obama and his ad-men advisors told them. They listened. They believed. But they did not understand that in the US politicians have made an art form out of telling people whatever they want to hear in election campaigns, and then go and do what their corporate campaign paymasters tell them they must do.

If anyone had bothered to investigate Obama’s financial and business connections before 2008, they would have discovered the big Chicago corporate benefactors who handpicked him out of a south Chicago political ‘no man’s land’ and pushed him to the top on an accelerated fast track. They would have discovered his hedge fund roommates and buddies from his Harvard years. And his close connections to Wall St. interests. But they didn’t. They believed because they wanted to believe that Obama and the Democrats were different and would save them from the Bushes, Cheneys, the Rumsfelds, the bankers, and the rest of the US political elite. They believed because there was no alternative—i.e. because there was no other organization on the US political horizon they could turn to that raised the potential of something different, something real, something outside the two wings of the single corporate party of US America.

Fast forward to 2015 today. Rewind the old 2008 tape and the show is about to begin again. Like a bad TV comedy rerun, only the names of the players have changed. Substitute gender for race, and we have Hillary Clinton instead of African-American Barack Obama. If we only pick the right race—scratch that—the right gender, that will surely ensure a progressive candidate and solution. Identity politics is the name of the game in US politics. And single issue politics the bane of the American liberal left.

Déjà vu All Over Again

So now the cycle has begun again. As the great American philosopher, Yogi Berra, once said: “It’s déjà vu all over again.” Among union leaders, leaders of various ethnic organizations, church leaders, liberal academics, and all the rest that consider themselves “progressives,” one today hears the same refrain: Elizabeth Warren, Senator from Massachusetts, is our preferred candidate. If Hillary implodes before November 2016 national elections, we have Elizabeth Warren in the wings. Hillary may be the only one who can win against a Republican. But Elizabeth will keep Hillary honest and ensure she, Hillary, adopts appropriate progressive positions during the 18 month campaign that lies ahead. Push the Democratic Party to the left and Hillary will have to follow.

And this year we are especially fortunate, progressives add. Now we have an even more progressive candidate, left of Warren, waiting to step up as well—the Senator from Vermont, Bernie Sanders, who also announced his candidacy for president in recent weeks. If Warren pushes the party left, then Sanders, just outside the party (actually always with one foot in it) can pull her still further left. And who knows, if Hillary falters, Sanders might actually push Warren to finally enter the race, providing her ‘left cover’ for her candidacy, as they say.

And Bernie’s not Ralph Nader, progressives happily further declare. He won’t disrupt either Hillary or Warren from winning, since he’s already publicly made it clear, in announcing his candidacy to run for president on the Democrat party ticket, that he’ll vote for whoever becomes the Democrat party candidate in 2016. Sanders may be an “independent,” but he’s running for the Democrat party nomination and he’ll support the Democrat candidate if he doesn’t win it. As Sanders himself put it in a recent CBS News interview, “If you want to mobilize people it is hard to do it outside the two-party systems.” As if popular mobilization could only occur within the two wings of the single (not two) party system that is U.S. politics.

So it’s “back to the future” once again. But nothing has changed organizationally from 2008, whether it’s Hillary, or Warren, or even Sanders. Progressives and leftists can maneuver on the ever-shrinking left margins of the Democrat party all they want, to little avail. In fact, corporate interests who today really run the Democrat party like and encourage that. Keeps potential discontented rank and filers oriented to the party during the campaign period, to be called upon to vote again for the ‘lesser evil’, to hold their noses and vote Democrat again, in order to prevent an even worse alternative. Like the Koch brothers “bought boy,” governor Scott Walker of Wisconsin. Or that remaining “royal,” the preferred choice of the big corporate blue bloods, Jeb Bush. Or that Tea party “enfant terrible,” Rand Paul.

Whoever rides in on the white horse — Hillary, Warren or even Sanders (or perhaps Biden, O’Malley of Maryland, or someone else) — it’s still the horse that chooses the direction it wants to take the rider. And that horse is the Democratic Party’s corporate leadership.

In the late 1980s, led by the corporate faction within it at the time, then called the ‘Democratic Leadership Conference’ (DLC), the influence and role of anything resembling progressive forces within the Democratic party began a long decline. Bill Clinton was the first DLC candidate. Once in office, he delivered on free trade, tax cuts for investors, purged welfare programs, gave a green light to the health insurance lobby to merge and acquire competitors at will, accelerated the destruction of defined benefit pension plans, let big banks like Citigroup run the U.S. Treasury Dept., opened up China imports to the U.S., embarked on military adventures in Europe and Somalia, deregulated financial institutions and commodity trading, and even suggested the partial privatization of social security trust fund investing. When George W. Bush replaced Clinton, he merely drove a bigger hole through the various openings that Clinton provided. The Democratic Party transformed during the Bill Clinton years, to an even more strongly dominated corporate-financed and corporate run party by 1990s end. There was no need for the DLC by the end of the decade; the DLC had become the Party leadership elite.

Formerly a coalition of interests — union, urban activists, ethnic and minorities, unions, progressive intellectuals, and business interests — the Democrat party today is not the Democrat party of one’s fathers. It is not the party of Franklin Roosevelt. It is an entirely different political animal. And those within it, or support it, who think it can be reformed and again become a party of FDR are seriously deluding themselves. Nevertheless, progressives still talk in terms of push this or pull that candidate. (Push too hard, and they get “Kuciniched,” as in the case of party progressive maverick, Dennis Kucinich, who pushed too far left. He then had his U.S. House of Representatives district conveniently restructured out from under him by a committee of Republican and Democrat party leaders, leaving him with no seat in Congress).

“Inside” vs. “Outside” Strategies

Despite the Democratic Party having been transformed in all but name over the course of the last quarter century, the old debates are again being resurrected among trade unionists, liberal intellectuals, and progressives in the U.S. — i.e. debates about whether the best strategy in 2016 is an “inside” or an “outside” strategy in relation to the Democratic Party.

What is meant by “inside-outside” strategy is whether it is best to work “inside” the Democratic party or ‘outside’ it to bring about changes in programs and policies that the party nominee for president will carry into the next presidential election campaign and, by assumption, translate into action after winning the election.

“Inside” means working within the party to convince the Senator from Massachusetts, Elizabeth Warren, to run for the Democrat party presidential nomination and to support her should she do so; “Inside” also means, at minimum, to assist Warren to raise issues in caucuses and local levels to force Hillary Clinton to adopt more progressive positions during the upcoming campaign.

“Outside” strategy means trying to achieve more or less the same by supporting the Senator from Vermont, Bernie Sanders. Sanders would raise real issues in the Democratic party debates before and during the primaries, to move the party itself left. That would, according to political logic, force Hillary Clinton to propose ideas during the debates and primaries period that she could not later back away from during the general election after the primaries. Within the party itself, albeit on its left wing, Warren could not be as aggressive with new ideas or as critical of Hillary, as could Sanders located outside the party.

But all this has been tried before, and failed to result in any change. “Inside” strategies have been employed by Democrats, from Jesse Jackson in the 1980s to Dennis Kucinich and now Elizabeth Warren. “Outside” strategies have been undertaken by the most recent experience with a Labor Party, from the 1990s through mid-2000s; the so-called Working Families Party’ launched by the AFL-CIO; and now the Sanders’ candidacy.

What Will It Take?

The past 35 years in U.S. politics shows conclusively that neither ‘inside’ nor ‘outside’ strategies targeting the Democratic Party have any effect on the leadership elite of that party, a strongly pro-corporate interests elite, or have any effect on the policy directions that leadership elite wants to take. So are Warren and Sanders wasting their time?

No. They introduce ideas into the public discussion. But that’s basically all. Their discussion of ideas won’t lead to any fundamental change. And change is what is needed. Workers, students, immigrants, minorities, union members, don’t need to be informed about income inequality, or anything else. They know. What’s needed is organization. And by organization is meant a new, grassroots, bottoms-up movement that is united in new ways organizationally as well as in terms of strategy and objectives. A movement that is unified across single issues and is oriented toward a struggle for institutional power, and not just improving the rights of this or that identity group.

Does that mean a Labor Party? Not if the strategy for creating such a party depends on getting the endorsement or support of top level union presidents in the AFL-CIO or Change to Win labor federations. They will never break from the Democratic Party. As the organized union movement grows weaker, it will depend even more on the Democratic Party. Union leaders pulled the plug after 2000 on the 1990s initiative and movement to form a labor party, fearful of a repeat of the Nader-Green party experience of 2000 where the Greens and Nader were blamed for George W. Bush’s victory in Florida and thus the presidency. But it was Democrat candidate, Al Gore, who refused to have the ballots in Florida properly re-counted, not the Greens. And it was the U.S. Supreme Court that gave Bush the election, based on the weakest of legal arguments — not the Greens or Nader.

The tragic collapse of the U.S. labor movement since 1980 can be traced in large part to its growing adherence and dependency on the Democratic Party. Even as union membership has fallen in the private sector to less than 6.7 percent of the workforce today, and as public sector workers are under increasing attack, national union leaders will never break from the Democrats and support a new independent party. In fact, they will exert all necessary pressure on local unions to prevent them from doing so as well.

What about the Occupy movement of 2011? Will it resurrect and move toward some form of party organization? The answer is not likely on either account. Occupy was a movement that mistook a tactic (occupy government or public spaces) for a strategy. And because tactics flow from strategy and there was no strategy, it was unable to adjust tactics quickly when attacked by a nationally organized and coordinated police offensive. And organization was of even less concern to the movement than was strategy.

How about left intellectuals? Can they call a conference for the purpose of forming an independent progressive party in the U.S.? Actually they have. Repeatedly. But like all such efforts in the past, no ‘top down’ party creation called by intellectuals has ever taken root and grew. They fundamentally lack any base on which to build a movement and organization.

That leads to the only possible solution. An alternative, progressive, independent party is desperately needed in the U.S. But progressive politics cannot continue down the dead end path of single issue politics. Party must come ‘from below’, from real social movements, led by real leaders of those social movements—i.e. leaders of immigrant rights groups, of local trade unions unafraid of national union opposition or pressure, of leaders of the new civil rights movements now in formation, of leaders of movements to protect and defend democratic rights, of leaders of environmental movements with a broader vision of strategic alliances, leaders of movements to fight for a living wage, and so on. These are the only real forces upon which independent political action can be built.

The first step toward forming such a unified movement is for leaders and representatives of grassroots movements to realize they cannot succeed long term pursuing their single issues on their own any longer. They must come together to create unified regional and national movements. Appropriate, pre-party forms of organization will be required, as may some kind of fundamental founding principles and a shared, basic strategic view. Creating a movement of movements is the first requisite, in other words. Perhaps a founding convention might be called as a preliminary first step, attended by a critical mass of grassroots leaders and activists by invitation—i.e. a founding convention followed by further subsequent follow up regional conventions. A united movement first, composed of real grassroots movements, leaders, and activists. Perhaps a party later, only after a unified front of movements is first firmly established.

Can such an approach work? Perhaps. Perhaps not. But its chances of success would be no less likely than trying to reform the Democratic Party by means of either an ‘inside’ or ‘outside’ strategy. Or by running around the country talking about things the majority of the American people already know by now, in this the 7th year of the fake recovery from the crisis of 2008.

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.

This content was originally published by teleSUR at the following address:
http://www.telesurtv.net/english/opinion/The-Organizational-Question-in-US-Progressive-Politics-20150527-0052.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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Alternative Visions Radio Show, May 23, 2015- “Bernie Sanders and the Organizational Question in US Politics” – 05.23.14

This Radio Show is Available and Downloadable at:
http://www.alternativevisions.podbean.com

or at:

http://prn.fm/alternative-visions-bernie-sanders-and-the-organizational-question-in-us-politics-05-23-14/

SHOW ANNOUNCEMENT:

‘Jack Rasmus invites seasoned political activists, Steve Early and Alan Benjamin, to discuss the strategic significance, pro and con, of Bernie Sanders’ recent announcement of his candidacy for US President and run in the Democratic Party primaries against Hillary Clinton. Both Steve and Alan go back to working with Sanders on campaigns in the 1970s when Sanders entered politics, and then spent 40 years in union and local progressive politics in Richmond and San Francisco, Calif. Steve and Alan take slightly different positions in offering qualified support to Sanders’ just announced presidential run. Commentaries by Steve, Alan, and Jack range from applauding Sanders for raising desperately needed new ideas re. income inequality, taxing the rich, minimum wage, money in politics, free trade, college tuition and debt. In supporting Sanders more directly, Steve critiques the failed history of independent challenges from outside the Democratic party, from Jesse Jackson to Ralph Nader and the Green party. Alan provides a more qualified approval of Sanders’ ideas and issues he’s raising, but argues Sanders’ declared support for the eventual Democratic Party candidate (most likely Hillary) is a political dead end for working and middle classes, as recent history also shows. Jack argues independent candidacies—whether within the left wing of the Democratic Party or just outside it (Sanders strategy) have not changed anything for decades, as conditions have actually gotten worse as Democrats increasingly support Republican-Corporate positions on free trade, destruction of unions, attacks on public workers, money in politics, business tax cuts, etc. All agree change must come from below, in real independent grass roots movements. Jack raises the question, if ‘inside and outside’ Democratic Party strategies have both failed, why haven’t grass roots movements come together to discuss new strategies and form new ‘bottom up’ challenges to the status quo.’

Steve Early is a retired, long time CWA union organizer and staff rep, who has been active in local Richmond, Calif., political organizing and fights against Chevron oil. He is author of the recent book, ‘Save Our Unions’, by Monthly Review Press.

Alan Benjamin, is a delegate to the San Francisco Central Labor Council, a member of OPEIU, editor of The Organizer progressive socialist newspaper, and a member of the executive committee of the Labor Fightback Network in the US.

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On May 8 the Conservative Party in the UK won an upset electoral victory, gaining an unexpected outright majority of seats in the British Parliament. The big losers in the election were the UK Labour Party and Liberal Party, both of which occupied ‘centrist’ positions in the election, as they both had consistently for the past several years. Big winners were also the Scottish National Party (SNP) and the emerging UK Independence Party (UKIP), both of which championed independence positions—SNP calling for independence from the UK and UKIP from the European Union (EU). Significant support for the idea of breaking from the EU has also been growing within the Conservative Party itself, where a well-organized wing now calls for an outright break from the EU as well.

Two years ago, in 2013, this writer predicted publicly that Britain’s exit from the EU was inevitable. As noted in Z magazine: “more economies in the Eurozone will slip into recession…and the UK will vote to leave the European Union” (Z magazine, ‘Predicting the US and Global Economy, 2013-14’, July 2013).

The logic behind this prediction was that the British economy would continue to grow poorly over the long run. Hot money inflows from foreign investors might temporarily boost London and south England real estate, but it would have little positive impact longer term on the rest of the UK. The UK recovery would prove short and shallow, as it in fact has, registering a meager 0.3% growth rate in its latest quarter GDP. In light of this fact, logic further suggested UK corporations and media would deflect public opinion from the real causes of the poor economic performance, and blame foreign immigrants for the problem, claiming they were responsible for over-loaded public services and for weak job and wage creation. And that’s pretty much what has happened in the interim since 2013.

Party Alignments on Brexit

The UKIP and the Conservatives played the EU-immigration card well in the run-up to the recent election. In contrast, the Labor Party and Liberals did not, failing to raise an effective campaign to convince voters the real problems lay in the pro-corporate, and especially pro-banker, policies of the Conservative party itself. Simultaneously, Labour took a weak position on the matter of remaining in the EU and openly opposed Scottish independence. The Liberals strongly supported remaining in the EU and opposed Scottish independence. Labour was swept from its former northern, Scottish stronghold and lost scores of seats to the Scottish National Party (SNP) which won 56 of 59 seats in Scotland. The Liberals lost mostly to the Conservative Party. The Liberals were virtually wiped out and will likely disappear soon from the British political party landscape. Meanwhile, the UKIP posted a major challenge to the Conservatives, which the latter barely averted.

Although the UKIP did not win significant seats, due to the UK’s peculiar method of assigning seats in parliamentary elections, UKIP won more than 3 million and 13% of the UK popular vote. It also came second in more than 90 of the 650 contested Parliament seats, most of them contested against Conservatives who won. Cameron’s conservatives will not lose sight of the fact the UKIP is poised to take from it a meaningful number of seats in future elections should it, the Conservatives, allow themselves to be outflanked on the EU and immigration issues. They didn’t during the election, and they won’t now on the matter of policy.

What the recent UK election reflects is that centrist conservative and social democratic parties throughout Europe are now in an undeniable decline, giving way either to challengers on the left or on the right depending on political formations and their strategies. As the European economic crisis drags on into its sixth year, European electorates want a solution to the grinding economic stagnation that seems only to benefit investors, the corporate elite, and bankers. And they aren’t getting solutions from centrist parties, like the Labour or Liberal parties in the UK, or their counterparts elsewhere in Europe.
The UK conservative party was able to sidestep the anti-centrist parties’ trend by cleverly leaning right during the election, promising a referendum by voters on the EU and immigration issues if they won. That promise resonated, even if it represents an economic dead end. The Conservatives electoral victory was therefore more a self-inflicted defeat by their traditional opponents, the Labour and Liberals. It’s not so much the Conservatives won; it’s that the more centrist Labour and Liberals lost. The Conservative party will therefore undoubtedly continue to move right on the policy issues in the months to come.

But proposals Cameron will likely raise in his promise to negotiate with the EU are demands the EU cannot, according to the EU Treaty, agree to. EU member states in eastern Europe in particular will vigorously oppose Cameron’s plans. The conservative party gained seats because it was politically astute enough to head off the UKIP on the topic of EU exit (Brexit) and immigration during the election. It is unlikely therefore Cameron and the conservatives will allow the UKIP to continue to outflank them on EU and immigration policy in the months to come. Especially since there’s the matter of the growing wing within the conservative party advocating the same as UKIP.

The SNP was ‘hard’ on the issue of its own independence from the rest of the UK, but up to now ‘soft’ on the matter of EU independence. It is quite possible that it will now shift on the matter of UK independence from the EU. Should Britain exit from the EU, it will serve as a solid pretext for the SNP again raising the necessity for conducting another vote for Scotland’s independence from the UK. Add to that the continued pressure by the UKIP in favor of leaving the EU, the growing vocal minority within the Conservatives in favor of the same, and the now almost silenced voice for EU continued membership by the diminished Labour and Liberal parties, and it is extremely likely that Britain will vote to leave the EU when the referendum is conducted. The question of a referendum is now not whether, but how soon.
Initial talk of a date for the referendum was 2017. But it is more likely to occur in 2016, perhaps even before next summer 2016.

Class Forces & Brexit

Given party alignments and public opinion growing in favor of exit, the deciding factor will be the position assumed on the question of Brexit by British Capital, and especially the politically over-weighted British banking sector that is tightly connected with prime minister, David Cameron, and the Conservative party itself. While some export oriented UK companies are worried about a Brexit, more companies would welcome less competition from EU companies.

Britain’s share of exports to the EU has been declining significantly in recent years, falling from 57% of the UK’s total exports to only 50% in 2014. Britain is clearly trying to ‘pivot’ economically to Asia, China, and elsewhere. It is more interested in attracting Chinese capital than it is in selling more exports to the EU.

Then there’s the British banks. They have already expressed a strong dislike of forthcoming EU banking regulations in the works. Some big Brit banks, like HSBC and Standard Chartered, have already raised a warning they are considering or planning to move headquarters from London. And it is well known that British banks, desperate to remain a global center for banking, want to turn London into a freewheeling center for the more aggressive forms of financial speculation in order to head off growing competitive pressures from rising banking circles in Asia, the Saudi peninsula, and New York.

Not surprising, therefore, Bank of England’s governor, Mark Carney, recently appeared on BBC television calling for Cameron and the new government to hold the referendum well before 2017, urging a vote in the summer 2016. The longer the delay, according to Carney, the more the economic uncertainty. And the UK cannot afford more economic uncertainty, with its most recent GDP at only 0.3% growth and given growing signs the recent artificial real estate and hot foreign money inflow to UK recovery is wearing thin.

Heeding the Bank of England’s warning, prime minister Cameron will no doubt quickly try to negotiate a ‘new deal’ with the Eurozone on immigration and related matters, in the hope of preventing the need to leave the EU altogether. But his plan to renegotiate will undoubtedly fail, as the EU won’t retreat on what will in effect require a revision of the EU treaty itself that could never pass an EU membership vote. Already other EU countries like Poland and Hungary have declared the ‘open immigration’ provision of the EU treaty represents a “red line” (Hungary) and is “sacrosanct” (Poland). Cameron can promise to negotiate all he wants, but he won’t be able to deliver.

To sum up then, UK exit (Brexit) from the EU is just a matter of time, as a result of the recent elections. Cameron and the conservatives won’t allow the UKIP to outflank them on the issue. If they do, next election the UKIP’s 90+ second place seats may well turn into UKIP capturing 50 or more seats from the Conservatives. A growing wing within the Conservatives wants Brexit. Cameron will fail to provide an acceptable negotiated compromise solution with the EU. The party voices for remaining in the EU, the Labour and Liberals, have been significantly muted. And the SNP may very possibly add its voice to Brexit as well, as it strategically reorients itself given its new significant power base.
The key question for the future is what are the implications for a Brexit, if held in mid-2016 and should UK voters to leave the EU? What happens economically to the EU, with the departure of such a major participant? Not likely anything good, in economic terms.

Brexit + Grexit 2016

Brexit also raises questions about Greece remaining in the Eurozone. While Greece’s exit (Grexit) does not appear on the agenda in the short term, it could very well become the case a year from now. A Brexit would almost certainly encourage the forces in favor of Grexit. And the timing may not be totally coincidental.

As Greece’s current negotiations with the Troika (European Central Bank, IMF, European Commission and Eurozone Finance Ministers) approaches the critical month of June 2015 and the expiration of the extension of the past debt agreement at the end of June, the possibility of Greece’s default on debt payments to the Troika appears increasingly likely.

The Troika, and finance ministers in particular, have continued to assume a very hard line in negotiations with Greece. They refuse to provide funding that has been due to Greece under the prior agreement they agreed themselves to extend. Greece must make concessions, while the finance ministers and Troika violate the terms of the prior agreement themselves.

Greece has been ‘scraping the barrel’, as they say, to come up with money to make debt payments that have come due in May. Local government treasuries have been emptied of cash and Greece has borrowed the last of its credit line from the IMF to raise what is additionally needed to make payments in May. But even larger debt payments are coming due in June and July and it doesn’t appear Greece has the funds.

The Troika, in other words, is making Greece bleed and force it to capitulate. What it, the Troika, really wants is for Greece to formally commit before the end of June to the labor market reforms it is demanding Greece implement as a condition for releasing money and funds due Greece under the terms of the old agreement. Labor market reforms int his case means pension cuts, layoffs, and more flexibility for companies to fire workers. Thus far, Greece has resisted.

The current direction of negotiations suggests Greece will more than likely agree to a bad deal at the end of June, in order to avoid a default. But that won’t be the end. The Troika and euro finance ministers will continue to squeeze Greece as future debt payments come due later this summer. Any agreement by June will likely be short term. So more concessions will be demanded, in exchange for future release of funds. The Troika will hold Greece’s ‘hand to the fire’ to ensure it, Greece, continues to implement the labor market reforms and other demands. Agreeing on paper that it will do so, will not prove sufficient for the Troika to release funds. So the interminable negotiating will likely continue.

Meanwhile, the Greek economy will continue to deteriorate further, as it already has begun to do. Late 2014 it appeared to have stabilized. But no longer. It will now get worse. Eventually the Greek people will realize there will be no final solution from negotiations with the Troika. The current crisis represents the new norm. Once that occurs, the only alternative is Grexit. That process of realization could take months, perhaps a year. Perhaps next summer 2016—coincident with the UK’s Brexit. One can only speculate what the convergence of these two possibilities might represent politically, and economically.

Preparing for Grexit

So how might Greece prepare for a possible Grexit? One doesn’t simply declare it is leaving the Eurozone. That’s not how it works. And it’s certainly a formula for economic crisis. An alternative, however, is for Greece to begin to prepare to introduce a parallel currency to the Euro.

A ‘new drachma’ or other currency might be introduced into the Greek economy. Its exchange rate with the Euro should be set higher than the Euro and its introduction include economic measures to ensure the parallel currency assumes, and retains, an exchange rate value greater than the Euro. Perhaps designating the new currency as the currency with which taxes are paid could ensure a demand for it, and thus a higher exchange rate than the Euro. Or the parallel currency might be designated as the currency for all international trading transactions, with the same effect. Releasing the currency slowly to ensure a limited supply could also ensure its greater exchange value. Euros might be used only for payment of past debt to the Troika. That would reduce the demand for Euros internally within Greece, and conversely lower the value of the Euro in Greece in competition with the new currency. Businesses and consumers might then trade in their Euros for the new drachmas. With the convertibility between the currencies favoring the stronger parallel currency, the Greek government could then buy up Euros within Greece, and then make payments to the Troika in what are depreciated Euros. Greece would thus reduce its debt and debt payments in real terms.
Strict controls on outflows of Euros would be required. And if the Troika refused to go along with the plan, Greece could simply pay them what Euros it had left and tell them all Greece has to pay debt with in the future are the ‘new drachmas’. The Troika can either payment with new drachmas or nothing. The Troika could then throw Greece out of a Eurozone that Greece has already effectively already left.

The preceding, of course, represents just one plan for Grexit. The point is that Greece must realize it must develop some kind of plan. The Greek economy will only get worse, given the current scenario of continuing Troika negotiations after June. For the Troika will not let go, and will continue to squeeze Greece until it returns its economy back to the austerity driven depression condition it was in before the January 2015 elections and Syriza’s assuming the government. But then, maybe that’s what the Troika also wants—i.e. to squeeze from Syriza any programs and proposals that differentiated it from its predecessor, Pasok, which was the appendage of the Troika in Greece. Syriza will therefore soon have to choose: does it want to become ‘Pasok Light’, or remain Syriza? Does it want to confront default on July 1, or Grexit in 2016? It doesn’t appear the Troika is willing to give Greece any other choice. Just as the UK will have no other choice in 2016 as well.

The consequences of a dual exit, a Brexit and a Grexit, in 2016 for Europe and the global economy would prove interesting, to say the least.

Jack Rasmus
May 17, 2015

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.

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published in teleSUR May 20, 2015

How likely are the UK and Greece to exit the EU and Euro? Read my just published analysis, including how Greece must prepare a parallel currency before exit.

On May 8 the Conservative Party in the UK won an upset electoral victory, gaining an unexpected outright majority of seats in the British Parliament. The big losers in the election were the UK Labour Party and Liberal Party, both of which occupied ‘centrist’ positions in the election, as they both had consistently for the past several years. Big winners were also the Scottish National Party (SNP) and the emerging UK Independence Party (UKIP), both of which championed independence positions—SNP calling for independence from the UK and UKIP from the European Union (EU). Significant support for the idea of breaking from the EU has also been growing within the Conservative Party itself, where a well-organized wing now calls for an outright break from the EU as well.

Two years ago, in 2013, this writer predicted publicly that Britain’s exit from the EU was inevitable. As noted in Z magazine: “more economies in the Eurozone will slip into recession…and the UK will vote to leave the European Union” (Z magazine, ‘Predicting the US and Global Economy, 2013-14’, July 2013). The logic behind this prediction was that the British economy would continue to grow poorly over the long run. Hot money inflows from foreign investors might temporarily boost London and south England real estate, but it would have little positive impact longer term on the rest of the UK. The UK recovery would prove short and shallow, as it in fact has, registering a meager 0.3% growth rate in its latest quarter GDP. In light of this fact, logic further suggested UK corporations and media would deflect public opinion from the real causes of the poor economic performance, and blame foreign immigrants for the problem, claiming they were responsible for over-loaded public services and for weak job and wage creation. And that’s pretty much what has happened in the interim since 2013.

Party Alignments on Brexit

The UKIP and the Conservatives played the EU-immigration card well in the run-up to the recent election. In contrast, the Labor Party and Liberals did not, failing to raise an effective campaign to convince voters the real problems lay in the pro-corporate, and especially pro-banker, policies of the Conservative party itself. Simultaneously, Labour took a weak position on the matter of remaining in the EU and openly opposed Scottish independence. The Liberals strongly supported remaining in the EU and opposed Scottish independence. Labour was swept from its former northern, Scottish stronghold and lost scores of seats to the Scottish National Party (SNP) which won 56 of 59 seats in Scotland. The Liberals lost mostly to the Conservative Party. The Liberals were virtually wiped out and will likely disappear soon from the British political party landscape. Meanwhile, the UKIP posted a major challenge to the Conservatives, which the latter barely averted.

Although the UKIP did not win significant seats, due to the UK’s peculiar method of assigning seats in parliamentary elections, UKIP won more than 3 million and 13% of the UK popular vote. It also came second in more than 90 of the 650 contested Parliament seats, most of them contested against Conservatives who won. Cameron’s conservatives will not lose sight of the fact the UKIP is poised to take from it a meaningful number of seats in future elections should it, the Conservatives, allow themselves to be outflanked on the EU and immigration issues. They didn’t during the election, and they won’t now on the matter of policy.

What the recent UK election reflects is that centrist conservative and social democratic parties throughout Europe are now in an undeniable decline, giving way either to challengers on the left or on the right depending on political formations and their strategies. As the European economic crisis drags on into its sixth year, European electorates want a solution to the grinding economic stagnation that seems only to benefit investors, the corporate elite, and bankers. And they aren’t getting solutions from centrist parties, like the Labour or Liberal parties in the UK, or their counterparts elsewhere in Europe.

The UK conservative party was able to sidestep the anti-centrist parties’ trend by cleverly leaning right during the election, promising a referendum by voters on the EU and immigration issues if they won. That promise resonated, even if it represents an economic dead end. The Conservatives electoral victory was therefore more a self-inflicted defeat by their traditional opponents, the Labour and Liberals. It’s not so much the Conservatives won; it’s that the more centrist Labour and Liberals lost. The Conservative party will therefore undoubtedly continue to move right on the policy issues in the months to come.

But proposals Cameron will likely raise in his promise to negotiate with the EU are demands the EU cannot, according to the EU Treaty, agree to. EU member states in eastern Europe in particular will vigorously oppose Cameron’s plans. The conservative party gained seats because it was politically astute enough to head off the UKIP on the topic of EU exit (Brexit) and immigration during the election. It is unlikely therefore Cameron and the conservatives will allow the UKIP to continue to outflank them on EU and immigration policy in the months to come. Especially since there’s the matter of the growing wing within the conservative party advocating the same as UKIP.

The SNP was ‘hard’ on the issue of its own independence from the rest of the UK, but up to now ‘soft’ on the matter of EU independence. It is quite possible that it will now shift on the matter of UK independence from the EU. Should Britain exit from the EU, it will serve as a solid pretext for the SNP again raising the necessity for conducting another vote for Scotland’s independence from the UK. Add to that the continued pressure by the UKIP in favor of leaving the EU, the growing vocal minority within the Conservatives in favor of the same, and the now almost silenced voice for EU continued membership by the diminished Labour and Liberal parties, and it is extremely likely that Britain will vote to leave the EU when the referendum is conducted. The question of a referendum is now not whether, but how soon.

Initial talk of a date for the referendum was 2017. But it is more likely to occur in 2016, perhaps even before next summer 2016.

Class Alignments & Brexit

Given party alignments and public opinion growing in favor of exit, the deciding factor will be the position assumed on the question of Brexit by British Capital, and especially the politically over-weighted British banking sector that is tightly connected with prime minister, David Cameron, and the Conservative party itself. While some export oriented UK companies are worried about a Brexit, more companies would welcome less competition from EU companies. Britain’s share of exports to the EU has been declining significantly in recent years, falling from 57% of the UK’s total exports to only 50% in 2014. Britain is clearly trying to ‘pivot’ economically to Asia, China, and elsewhere. It is more interested in attracting Chinese capital than it is in selling more exports to the EU.

Then there’s the British banks. They have already expressed a strong dislike of forthcoming EU banking regulations in the works. Some big Brit banks, like HSBC and Standard Chartered, have already raised a warning they are considering or planning to move headquarters from London. And it is well known that British banks, desperate to remain a global center for banking, want to turn London into a freewheeling center for the more aggressive forms of financial speculation in order to head off growing competitive pressures from rising banking circles in Asia, the Saudi peninsula, and New York.

Not surprising, therefore, Bank of England’s governor, Mark Carney, recently appeared on BBC television calling for Cameron and the new government to hold the referendum well before 2017, urging a vote in the summer 2016. The longer the delay, according to Carney, the more the economic uncertainty. And the UK cannot afford more economic uncertainty, with its most recent GDP at only 0.3% growth and given growing signs the recent artificial real estate and hot foreign money inflow to UK recovery is wearing thin.

Heeding the Bank of England’s warning, prime minister Cameron will no doubt quickly try to negotiate a ‘new deal’ with the Eurozone on immigration and related matters, in the hope of preventing the need to leave the EU altogether. But his plan to renegotiate will undoubtedly fail, as the EU won’t retreat on what will in effect require a revision of the EU treaty itself that could never pass an EU membership vote. Already other EU countries like Poland and Hungary have declared the ‘open immigration’ provision of the EU treaty represents a “red line” (Hungary) and is “sacrosanct” (Poland). Cameron can promise to negotiate all he wants, but he won’t be able to deliver.

To sum up then, UK exit (Brexit) from the EU is just a matter of time, as a result of the recent elections. Cameron and the conservatives won’t allow the UKIP to outflank them on the issue. If they do, next election the UKIP’s 90+ second place seats may well turn into UKIP capturing 50 or more seats from the Conservatives. A growing wing within the Conservatives wants Brexit. Cameron will fail to provide an acceptable negotiated compromise solution with the EU. The party voices for remaining in the EU, the Labour and Liberals, have been significantly muted. And the SNP may very possibly add its voice to Brexit as well, as it strategically reorients itself given its new significant power base.

The key question for the future is what are the implications for a Brexit, if held in mid-2016 and should UK voters to leave the EU? What happens economically to the EU, with the departure of such a major participant? Not likely anything good, in economic terms.

Brexit + Grexit 2016?

Brexit also raises questions about Greece remaining in the Eurozone. While Greece’s exit (Grexit) does not appear on the agenda in the short term, it could very well become the case a year from now. A Brexit would almost certainly encourage the forces in favor of Grexit. And the timing may not be totally coincidental.

As Greece’s current negotiations with the Troika (European Central Bank, IMF, European Commission and Eurozone Finance Ministers) approaches the critical month of June 2015 and the expiration of the extension of the past debt agreement at the end of June, the possibility of Greece’s default on debt payments to the Troika appears increasingly likely.

The Troika, and finance ministers in particular, have continued to assume a very hard line in negotiations with Greece. They refuse to provide funding that has been due to Greece under the prior agreement they agreed themselves to extend. Greece must make concessions, while the finance ministers and Troika violate the terms of the prior agreement themselves. Greece has been ‘scraping the barrel’, as they say, to come up with money to make debt payments that have come due in May. Local government treasuries have been emptied of cash and Greece has borrowed the last of its credit line from the IMF to raise what is additionally needed to make payments in May. But even larger debt payments are coming due in June and July and it doesn’t appear Greece has the funds. The Troika, in other words, is making Greece bleed and force it to capitulate. What it, the Troika, really wants is for Greece to formally commit before the end of June to the labor market reforms it is demanding Greece implement as a condition for releasing money and funds due Greece under the terms of the old agreement. Labor market reforms int his case means pension cuts, layoffs, and more flexibility for companies to fire workers. Thus far, Greece has resisted.

The current direction of negotiations suggests Greece will more than likely agree to a bad deal at the end of June, in order to avoid a default. But that won’t be the end. The Troika and euro finance ministers will continue to squeeze Greece as future debt payments come due later this summer. Any agreement by June will likely be short term. So more concessions will be demanded, in exchange for future release of funds. The Troika will hold Greece’s ‘hand to the fire’ to ensure it, Greece, continues to implement the labor market reforms and other demands. Agreeing on paper that it will do so, will not prove sufficient for the Troika to release funds. So the interminable negotiating will likely continue.

Meanwhile, the Greek economy will continue to deteriorate further, as it already has begun to do. Late 2014 it appeared to have stabilized. But no longer. It will now get worse. Eventually the Greek people will realize there will be no final solution from negotiations with the Troika. The current crisis represents the new norm. Once that occurs, the only alternative is Grexit. That process of realization could take months, perhaps a year. Perhaps next summer 2016—coincident with the UK’s Brexit. One can only speculate what the convergence of these two possibilities might represent politically, and economically.

Preparing for Grexit: A Suggested Parallel Currency

So how might Greece prepare for a possible Grexit? One doesn’t simply declare it is leaving the Eurozone. That’s not how it works. And it’s certainly a formula for economic crisis. An alternative, however, is for Greece to begin to prepare to introduce a parallel currency to the Euro.

A ‘new drachma’ or other currency might be introduced into the Greek economy. Its exchange rate with the Euro should be set higher than the Euro and its introduction include economic measures to ensure the parallel currency assumes, and retains, an exchange rate value greater than the Euro. Perhaps designating the new currency as the currency with which taxes are paid could ensure a demand for it, and thus a higher exchange rate than the Euro. Or the parallel currency might be designated as the currency for all international trading transactions, with the same effect. Releasing the currency slowly to ensure a limited supply could also ensure its greater exchange value. Euros might be used only for payment of past debt to the Troika. That would reduce the demand for Euros internally within Greece, and conversely lower the value of the Euro in Greece in competition with the new currency. Businesses and consumers might then trade in their Euros for the new drachmas. With the convertibility between the currencies favoring the stronger parallel currency, the Greek government could then buy up Euros within Greece, and then make payments to the Troika in what are depreciated Euros. Greece would thus reduce its debt and debt payments in real terms.

Strict controls on outflows of Euros would be required. And if the Troika refused to go along with the plan, Greece could simply pay them what Euros it had left and tell them all Greece has to pay debt with in the future are the ‘new drachmas’. The Troika can either payment with new drachmas or nothing. The Troika could then throw Greece out of a Eurozone that Greece has already effectively already left.

The preceding, of course, represents just one plan for Grexit. The point is that Greece must realize it must develop some kind of plan. The Greek economy will only get worse, given the current scenario of continuing Troika negotiations after June. For the Troika will not let go, and will continue to squeeze Greece until it returns its economy back to the austerity driven depression condition it was in before the January 2015 elections and Syriza’s assuming the government. But then, maybe that’s what the Troika also wants—i.e. to squeeze from Syriza any programs and proposals that differentiated it from its predecessor, Pasok, which was the appendage of the Troika in Greece. Syriza will therefore soon have to choose: does it want to become ‘Pasok Light’, or remain Syriza? Does it want to confront default on July 1, or Grexit in 2016? It doesn’t appear the Troika is willing to give Greece any other choice. Just as the UK will have no other choice in 2016 as well.

The consequences of a dual exit, a Brexit and a Grexit, in 2016 for Europe and the global economy would prove interesting, to say the least.

Jack Rasmus
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.

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In the following hour Alternative Visions show of May 9, Dr. Rasmus discusses evidence of the global economy becoming more financially and economically fragile over the past year. Included are China, Europe, Japan and Emerging Markets. Listen to the show at:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

May 9th, 2015 by progressiveradionetwork

“Jack Rasmus updates last week’s show on the decline in US GDP with new data for trade, productivity and jobs, and reviews events of the global economy in Europe, China and elsewhere including the Euro and global bond market sell off of the past week. A preview of his new book, ‘Systemic Fragility in the Global Economy’ due later this summer, is offered, describing the 9 key trends in the global economy today that represent the ‘dead cat bounce’ recovery: slowing real investment, drift toward deflation, explosion of central bank liquidity and credit, rising global corporate debt, the shift to speculative financial asset investing, the restructuring of financial and labor markets in the 21st century, and why central bank monetary policy and government fiscal policies are failing to generate a sustained real recovery of the global economy. How it is all resulting in rising global income inequality in turn.

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The following article was published in early May, when initial reports of 1st Quarter US GDP showed a mere 0.2% quarterly gain. Since then, as of mid-May, more data on the quarter suggest strongly the 1st quarter will show a negative GDP when further revisions are reported later this month, due to even worse data for business inventories, retail sales, and trade. Here’s my ‘first view’ of the initial first quarter US GDP estimates released in early May:

(The following was published by TeleSURTv and Media on May 5, 2015)

“Data released last week by the US government showed the US economy came to a near halt in the first three months of 2015, falling to nearly zero—i.e. a mere 0.2% annual growth rate for the January-March quarter. The collapse was the fourth time that the US economy in the past four years either came to a virtual halt or actually declined. Four times in four years it has stalled out. So what’s going on?

In 2011, the US economy collapsed to 0.1% in terms of annual growth rate. At the end of 2012, to a mere 0.2% initial decline. In early 2014, it actually declined by -2.2%. And now in 2015, it is essentially flat once again at 0.2%.

The numbers are actually even worse, if one discounts the redefinitions of GDP that were made by the US in 2013, counting new categories as contributing to growth, like R&D spending, that for decades were not considered contributors to growth—in effect creating economic growth by statistical manipulation. Those highly questionable 2013 definitional additions to growth added around $500 billion a year to US growth estimates, or about 0.3% of US GDP. Back those redefinitions out, and the US experienced negative GDP four times in the last four years. We get -0.2% in 2011, 0% in 2012, -2.5% in 2014 and -0.1% earlier this year.
It is therefore arguable that the US has also experienced at least one mild ‘double dip’ recession, and perhaps two, since 2010.

All the four US economic relapses occurred following preceding month gains in growth sufficient to generate claims by politicians and pundits alike that the US economy had finally ‘turned the corner’ and was now on a path of sustained economic recovery. Yet every time such claims were made, reality contradicted their predictions within a few months, and the economy collapsed again, creating a scenario not of sustained economic recovery but of a ‘stop-go’ trajectory.

The consequence of this ‘stop-go’ recovery is that the US economy since 2009—the official end of the last recession—has experienced the weakest recovery from recession in the last fifty years, just about half the normal post-recession recovery. And this ‘half normal’ recovery since 2009 occurs after an annual growth averaging only 1.7% during the years 2001-2010 in the US. Something new is happening to the US economy since 2000. What is it?

Recessions in the US have occurred on average every 7 years. It’s now year five since the last one officially ended in June 2009. What happens if the current weak recovery reaches its end at around 7 years, i.e. in mid-2016 a year from now? Will the next recession prove even worse, perhaps much worse, occurring as it will on a base recovery half of normal?

Unfortunately, such questions aren’t asked by most mainstream economists, and certainly not by politicians and business media pundits.

Stop-Go On A Steady Slowing Global Economy
The problem of weak, stop-go, recovery in the US today is further exacerbated by a global economy that continues to slow even more rapidly and, in case after case, slip increasingly into recessions or stagnate at best.

Signs of weakness and stress in the global economy are everywhere and growing. Despite massive money injections by its central bank in 2013, and again in 2014, Japan’s economy has fallen in 2015, a fourth time, into recession.

After having experienced two recessions since 2009, Europe’s economy is also trending toward stagnation once more after it too, like Japan, just introduced a $60 billion a month central bank money injection this past winter. Despite daily hype in the business press, unemployment in the Eurozone is still officially at 11.4%, and in countries like Spain and Greece, still at 24%. Yet we hear Spain is now the ‘poster-boy’ of the Eurozone, having returned to robust growth. Growth for whom? Certainly not the 24% still jobless, a rate that hasn’t changed in years. Euro businesses in Spain are doing better, having imposed severe ‘labor market reforms’ on workers there, in order to drive down wages to help reduce costs and boost Spanish exports. Meanwhile, Italy remains the economic black sheep of the Eurozone, still in recession for years now, while France officially records no growth, but is likely in recession as well.

Elites in both Italy and France hope to copy Spain’s ‘labor market reforms’ (read: cut wages, pensions, and make it easier to layoff full time workers). In order to boost its growth, Italy is considering, or may have already decided, to redefine its way to growth by including the services of prostitutes and drug dealers as part of its GDP. Were the USA to do the same redefinition, it would no doubt mean a record boost to GDP.

Across the Eurozone, the greater economy of its 18 countries still hasn’t reached levels it had in 2007, before the onset of the last recession. Unlike the US’s ‘stop-go’, Europe has been ‘stop-go-stop’.

Even beyond the Eurozone, in the broader Euro area the picture is not much better. After a brief, artificial real estate boom fueled by foreign investment, the UK is now growing again at a mere 0.3% rate. And then there’s China, where economic growth continues to slow, despite multiple fiscal and monetary stimulus programs introduced the past two years to try to boost the economy further. And the global slowdown applies not just the largest economies. Emerging market economies in Latin America, Africa, and elsewhere that are especially dependent on commodities production and exports have been descending one by one into recession, or at best stagnating.

Yet despite this growing global economic weakness, and the US economy’s repeated annual economic relapses and ‘half normal’ recovery rate, we are still being told that the US economy is sound and that it will lead the rest of the world economy toward sustained economic growth this year and next.

It’s the Weather!

We’re told the declines in US growth the last two years—January to March 2015 and before that 2014—have been due to ‘bad weather’. And that this coming summer 2015 the US economy will ‘snap back’ again, as it did last summer 2014.

But is economic forecast by weather metaphor really the cause of the recent US slowdown? Not really. Even economists themselves admit that, at the very most, only 0.5% of last quarter GDP decline can be attributed to weather. If the fourth quarter 2014 US GDP was 2.2%, in other words, then only -0.5% of the drop was due to weather. So what about the other -1.5% drop from the fourth to the first quarter 2015?

A closer look shows that at least -1.25% of that -1.5% was due to the sharp decline in US exports. That decline was due largely to the US dollar’s sharp rise in value compared to other currencies since last fall. A rising dollar makes US exports more expensive. US exporters lose out to European, Japanese and Chinese competitors. Since US exports are largely manufactured goods, that means US manufacturing slows—which it has. And that in turn means US growth slows.

The reason for the dollar’s rise is threefold. First, the US central bank’s repeated signaling of intent to raise US interest rates this year. Second, the collapse of world oil prices that also drive up the dollar. Third, the massive money injections by Europe and Japan central banks in the form of ‘quantitative easing’ (QE) programs that are designed to drive down the value of the Euro and the Yen in order to achieve a competitive advantage for their region’s exports at the expense of US exporters.

What’s going on globally today is rolling ‘competitive devaluations’ of currencies by means of massive central bank monetary injections. In ways this is somewhat like the 1930s depression. Then countries devalued their currencies by legal declaration, as they tried to boost their economies by stealing exports from competitors. The problem with that strategy is that all could do it, and they did. So no one gained in the end and the global economy and trade sank further. Today’s new form of competitive devaluation is no different. It signals the major capitalist regions of the world—i.e. north America, Europe, Japan, and now even China—are beginning to fight over a slower growing global economic pie. The devaluations are just assuming a different form. Not legal declaration but monetary injection by central banks.

In early 2014 Japan introduced its QE and central bank injection. It gained a temporary trade advantage. But then Europe did the same. Japan lost its advantage, which Europe gained. The US lost the most in terms of exports, since its dollar rose for two reasons—Japan and Europe currencies falling and talk of US interest rate hikes as well.

But most recently, the US central bank has signaled that interest rates may not rise this year. Oops. There goes the Euro and Yen losing its advantage once more and their economies slipping again. This see-saw, back and forth, fighting over a shrinking trade pie only reveals a new instability growing in the global economy. Europe in particular will soon be hammered by a potential Greek debt default, a continually imploding Ukrainian economy it has committed to bail out at $40 billion so far, and now the US indicating it won’t raise rates.

Watch Japan, which will likely again devalue still further to offset US and Europe measures. Meanwhile, as China continues to slow, it could eventually reduce the Yuan to boost its exports as well.

What this global scenario means is that the US economy significantly weakened in the first quarter 2015 due not to weather, but because of loss of global exports due to the reasons noted. But trade competition and currency wars are not the only explanation for the near collapse of the US economy last quarter.

Collapse of Oil Prices and US Economic Slowdown

Another major development in 2014 in the US, that disappeared by early 2015, was the Oil/Shale Gas boom. After having surged to record levels in the first half of 2014, contributing largely to the summer 2014 US 5% GDP rise, after mid-year the global price of oil collapsed. By end of year 2014 the collapse was in full swing. Investment in this sector fell by nearly half, regional construction activity in the Dakota-Texas area also fell abruptly, as did the mining activity as oil/gas wells were shut down, and as railroad and trucking transport activity declined. A major contributor to 2014 economic growth in the US thus fell through by early 2015. What’s significant, moreover, is that it won’t come back in 2015. So the ‘recovery’ in the summer of 2014 won’t have this contributing factor behind it in 2015.

One-Time Consumer Spending on Health Care

Another temporary factor that contributed to the summer 2014 surge in US growth, that has also since disappeared, is first time consumer household spending on healthcare services. Last summer was the first full year of sign-ups by 10 million households to Obama’s ‘Affordable Care’ Insurance Program. Spending on new insurance premiums, and on healthcare services by millions of new customers for the first time, together served to give US GDP last summer 2014 another major boost. But those sign-ups have leveled off. Most of those who wanted to sign up have done so. Future growth in health insurance and health care services has therefore leveled off.

So like the shale/oil gas surge and the export-trade advantage, the health care spending surge contribution to US economic growth is most likely temporary as well.
Why the US Economy Will Continue A ‘Stop-Go’ Trajectory
There are three fundamental causes why the US economy will continue on its 5 year long, stop-go recovery trajectory until the next recession in 2016 or after.

First, there is insufficient wage and income growth for the approximate 100 million wage earning households that constitute the bulk of consumer spending in the US, which accounts for roughly 70% of the US economy annually. In turn, the reason for the lack of wage and income growth by these households is the lack of full time, decent paying jobs creation in the US. Jobs that are being created are low pay, no benefit jobs. Part time and temp jobs. Service jobs, and few manufacturing or construction jobs. Working class consumption is also compressed by inability to earn interest on basic savings accounts. Then there’s household debt, for past education borrowing, for auto purchases, and credit cards, which also takes a toll on spending.

Second, there’s the lack of investment spending by business. Large, multinational corporations in particular continue to prefer to invest outside the US rather than in it. When not investing abroad, they prefer to ‘spend’ their record profits on stock buybacks and dividend payouts to shareholders. More than $5 trillion worth since 2009. Another trillion dollars projected in 2015 alone as well. Then there’s their growing investing in financial asset markets and securities, which now constitute about 25% of all multinational corporate investing. And what they don’t invest in financial assets, invest abroad, or spend in buybacks and dividends, they just hoard as cash on their balance sheets, reportedly now in excess of $1.7 trillion in their offshore subsidiaries. None of these alternatives and diversions result in real investment that create real decent paying jobs, at decent pay and benefits. Hence, consumption by the 100 million households stagnates or lags—except for more debt based spending perhaps.

Third, there’s no sustained recovery on the near horizon because the US government has clearly decided on growing only defense spending. The new Republican Party dominated US Congress insists on cutting social programs further, including long time once sacrosanct programs like Medicare for seniors. In the first quarter US GDP numbers, spending by State and Local governments slowed noticeably, as did US federal spending on non-defense products and projects.

Instead of sustained growth, the scenario is ‘stop-go’, as this or that temporary factor occur to boost US GDP and growth temporarily, followed by other temporary developments that in turn subsequently drag US GDP back to zero or negative growth. Add further to this scenario the Eurozone’s continuing economic instability, the UK’s new stagnant growth, Japan’s descent into yet another recession, China’s deepening struggle to maintain 7% growth that is almost certain to fall below that level soon, oil and commodity producing emerging markets that are already in recession, and an historic weak recovery already in its 5th year of an average 7 year cycle—then what remains is a likely further long term, stop-go US economy as the global economy continues to slow as well.

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 blogs at jackrasmus.com.

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In the past two weeks Dr. Jack Rasmus has dedicated his hour long radio show, Alternative Visions, on the Progressive Radio Network, to providing his analysis of why the US economy stalled out in the first quarter of 2015 (May 2 show) and a follow up show (May 9) on the topic again with a presentation of the major arguments presented in his new forthcoming book this summer, ‘Systemic Fragility in the Global Economy’.

The following url will take listeners to Rasmus’s website to download and play the May 2 show:

The show is also available at http://alternativevisions.podbean.com

Here’s the announcement of the show summary. (The May 9 follow up Alternative Visions show will be posted shortly as well).

MAY 2 SHOW ANNOUNCEMENT:

“Dr. Jack Rasmus analyzes US 1st Quarter GDP numbers, where US economic growth flattened out to a mere 0.2%–the fourth such collapse in the US economy in as many years. Is it due to the weather, as some argue? Is there something wrong with US statistics, showing four collapses since 2009 all occurring in the winter? Or are there real economic explanations for why the US economy periodically surges in the summer then stalls out in the winter, as it has since 2011? Will this winter 2015’s stall be followed by another ‘temporary surge’ in growth this summer? Jack looks beneath the numbers for real explanations for the US economy’s continuing ‘stop-go’ trajectory, identifying patters of one-off, temporary factors that typically have occurred in the 3rd quarter (July-September), only to dissipate in the winter quarters, in turn leading to an over-correction and decline in US GDP and growth repeatedly. It’s not the weather. It may be outmoded statistical methods by the US government. But it certainly is due to temporary events that don’t result in a sustained economy recovery, Jack argues. Government pre-election spending, restoration of defense spending, business inventory buildups, the global oil glut and US oil shale boom & bust, the US dollar decline and surge effects on US manufacturing-exports, diversion of US business investment into financial assets and offshore markets better account for the US stop-go trajectory, Jack argues. What’s missing is steady wage and income growth for 90% of US households and real job creating investment by business in the US.”

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