Jack Rasmus

COMMENTARY: A striking fact of the past four years is that the world’s 10,000 or so economists have overwhelmingly failed to predict the three major economic developments of this period, 2007-2011. First, only a handful predicted the financial crash of 2007-08 and subsequent deep global contraction that I have called an ‘Epic’ recession, to distinguish it qualitatively and quantitatively from normal recessions (and also from depressions). Secondly, the 10,000 have failed to predict the current protracted economic stagnation that has occurred since 2008 as well; instead nearly all mainstream economists in recent years forecast a sharp ‘V’-shaped sustained economic recovery since 2008-09 that has yet to take place. Third, today at year end 2011, they once again fail to see the sharp and even deeper retrenchment of the US and global economies that is coming, no later than 2013–and possibly even earlier should the Eurozone currency and banking system crash in 2012 which appears increasingly likely. In contrast to mainstream economists, the methodology applied to the US and global economy used by this writer to predict the US and global economies the past four years (as outlined in my book, EPIC RECESSION: PRELUDE TO GLOBAL DEPRESSION) has relatively accurately forecast the course of economic events. Based on that same methodology, this writer has recently predicted a double dip recession in the US no later than early 2013, and a major financial crisis in the Eurozone and a slowing of the global economy once again. This double-dip in the US and global slowdown in 2012-13 is treated in more detail in this writer’s forthcoming book that will by available February 2012, entitled OBAMA’S ECONOMY: RECOVERY FOR THE FEW). In future blog postings in the next few weeks this writer will also summarize why double dip in the US in 2013 and a Eurozone banking crisis in 2012 are increasingly likely. In the meantime, offered here are this writer’s select published predictions, both past and present. In ‘Part 1’ that immediately follows are predictions for 2012-13 for the US, Euro and global economy which will shortly appear in a forthcoming January 2012 article for ‘Z’ magazine. A ‘Part 2’ that immediately follows summarizes this writer’s prior published predictions for the preceding period 2008-2011. (A fuller analysis of Part 1 is included in the forthcoming January 2012 Z magazine article, soon available as well on my website, http://www.kyklosproductions.com.

“ECONOMIC PREDICTIONS: PRESENT (2012-13) AND PAST (2008-11)” by Jack Rasmus, copyright 2011

PART 1: FUTURE PREDICTIONS 2012-13

1. The US will experience a double dip recession in early 2013 or, in the event of another banking crisis in Europe, perhaps–though less likely–earlier in 2012.

Despite a continual hyping of economic reports by the media and business press in recent months, there is no recovery underway for jobs, housing, or state-local government finances. Job growth has been stuck throughout 2011 at around 80-100,000 a month per the Labor Departments monthly data. The broader measure of unemployment, the U-6 rate, has been consistently in the 16% range, or about 25-26 million for the past year. State-Local governments continue to lay off workers in the 20,000 range every month. Little effective stimulus will be forthcoming from the Federal government in 2012 despite the election year, and further deficit cutting is even possible in 2012. The first quarter of 2012 will record a significant slowing of GDP growth once again. Should the Eurozone debt crisis escalate once more in the second quarter of 2012, the US economy will weaken further in the second quarter, 2012. It may even slip into recession if the Euro crisis is particularly severe. More likely, however, is the scenario of an emerging double dip recession in early 2013, when deficit cutting by Congress and the administration intensifies.

2. The Federal Reserve will introduce a third version of its Quantitative Easing QE3 program in 2012.

QE is when the Fed prints money to directly purchase bonds from the private sector at above-market inflated prices, thus pumping up the money supply. As in the past two versions of QE in 2009 and 2010, the result will have little effect on the housing markets, jobs, or general recovery but will once again result in a boost to stock, bonds, and commodity speculation and related price inflation. The timing of QE3 will be driven by the events in Europe.

3. Real deficit-debt reduction will begin with great earnest immediately following the November 2012 general elections, or no later than February 2013.

The deficit cutting yet to come will dwarf the recent $2.2 trillion August 2011 deal. It will result in another $2-$4 trillion in cuts, mostly spending on social programs and entitlements like Medicare, Medicaid, and Social Security, as well as food stamps, unemployment insurance benefits, education and the 2010 Health Care Affordability Act. Tax hikes directly impacting the middle class will also occur, including heretofore untouchable measures like mortgage deductions.

4. Job growth will continue to stagnate and remain in the 24-25 million range throughout 2012, with a number of false starts in jobs recovery determined by seasonal and other statistical factors.

There are no effective programs in place today to fundamentally increase net jobs in the U.S. Further tax cuts in 2011-12 will not stimulate investment of jobs. Corporations will continue to refuse to commit their massive $2 trillion cash hoard to investment or jobs as they await the outcome of the Bush tax extensions in late 2012 and maintain a large cash cushion in anticipation of events in Europe and the possibility of another global credit crunch. Bank lending to small-medium business will also change little, with consequent investment and job creation by small business remaining largely on hold in 2012 as well. Simultaneously,
State-Cities-Schools will continue to layoff at the recent 20,000 a month rate–bringing the total of such public worker job loss to nearly 1 million during Obama’s first term. Post office employment will add to the layoff numbers, and federal government layoffs will commence in significant numbers in 2013.

5. Congress and the administration will pass two major tax bills in 2012

The first bill will bow to multinational corporations blackmail (and campaign contributions), and reduce the standard 35% corporate tax rate for offshore sheltered cash repatriation to the U.S. That tax rate will range between 5.25% and 10%, reduced from 35%. Multinational corporations will return about half of their current $1.4 trillion offshore profits hoard to take advantage of the lower rate–in a repeat of the same blackmail that occurred in 2004-05, when a similar bill reduced their rate to 5.25% from 35% to return about half of their then $700 billion offshore sheltered profits.

The second bill will be some kind of extension of the Bush tax cuts that will take place before the November 2012 elections; or, immediately after before year end. In the Bush tax extension deal, the top corporate and personal income tax rate of 35% will be permanently reduced to less than 30% in exchange for unverifiable tax loophole closings. The middle class will also pay higher taxes and the earned income credit for low pay workers will be reduced.

6. Home prices will continue to fall; foreclosures rise; and negative equity grow

Now at more than 11 million, foreclosures will continue to rise past 13 million. Home prices will continue to fall by 5-10% more in key markets (bringing the decline since 2006 to more than 40% on average). At least 17 million mortgaged homeowners (out of 54 million total) will experience negative equity. The Obama administration and Congress will force States attorneys general to accept the federal plan to let banks and lenders off the hook for robo-signing and illegal foreclosures, in exchange for a token fine. Housing and commercial property construction will continue to stagnate in 2012 at around current levels.

7. U.S. Exports and thus US manufacturing will slow in 2012

US exports will not outperform the global trade market and will slow, as will exports in general globally and including China and the Eurozone. As US exports soften, so in turn will their positive effect on US manufacturing production.

8. Should Eurozone banking implode, one or more major US banks will require further rescue by the Federal Reserve and US Treasury

In the event of a default by one or more sovereign economies in the Eurozone, major banks in France, Austria, Belgium and even Germany will become technically insolvent. In such case, the contagion will spread to US banks. Most vulnerable and requiring rescue are: Bank of America, Citigroup, Morgan Stanley.

9. The Eurozone Sovereign Debt Crisis Will Stabilize then Worsen Again

The Euro sovereign debt crisis will temporarily stabilize in early 2012 as the European Central Bank follows the US Federal Reserve and introduces quantitative easing while negotiations among the Euro states on a fiscal union begins. However, the sovereign crisis will erupt again in late spring 2012 as Italy and Greece encounter severe debt refinancing problems. Three to four times the currently available $1-1.5 trillion Euro bailout fund-more than $4.5 trillion will be eventually needed to resolve the Euro debt crisis.

10. Two or More Euro Banks will Fail

Several Euro banks will become technically insolvent and will be nationalized by their governments and bailed out. Major candidates include: the French banks, Societe General and BNP Paribas; the German Commerzbank; the Italian Unicredit, and possibly one or more Austrian and Finnish banks.

11. Both Germany and France will experience modest recession in 2012; the United Kingdom will experience a more severe double dip.

Germany and France economies slowed to virtually no growth at year end 2011 and both will slip into recession in 2012. A second round of severe austerity programs in the UK, introduced at year end by the conservative Cameron government, will produce a further economic contraction in the UK.

12. China’s Economic Growth Rate Will Slow

Having grown consistently in the 9%-10% range in recent years, Chinas GDP will slow dramatically in 2012, potentially to half the rate of previous years. Chinese manufacturing exports will contract. India and Brazilian economies will slow significantly as well. All three key economies will introduce stimulus programs, in contrast to the US, Eurozone, Japan.

13. Global Trade Will Slow and Begin to Contract in 2012

Already heading in the direction of contraction, given China’s slowing economy, continuing Eurozone instability, and slowing growth in the U.S. economy, the pace of declining world trade will quicken and global trade in general contract. Global manufacturing will follow in turn.

The foregoing bakers dozen of predictions about the US and global economy in the coming year are based upon a non-mainstream economic analysis this writer has developed in his 2010 book, Epic Recession: Prelude to Global Depression, and its forthcoming sequel this March 2012, Obama’s Economy: Recovery for the Few, both published and distributed by Pluto Books and Palgrave-Macmillan. Both works represent a new theoretical framework for analysis of the continuing economic crisis. This framework is the consequence of the recognition that the restructuring of the US and global economy that occurred in the 1980s in response to the earlier economic crisis of the 1970s has now collapsed with the events of 2007-08. Sometimes called neoliberalism this earlier 1980s restructuring has today run its course as capitalist economies are once again in the process of attempting to restructure the global capitalist economy anew once again. However, they have yet to do so. The result is continuing economic instability and volatility. The economy, U.S. and global, therefore continues in turn to reflect a degree of severe systemic fragility. To date this uncertain condition has been called by this writer a type I Epic Recession. But Epic Recessions have the internal tendency to transition from Type I to Type II, the latter a condition that is immediately preliminary to a global depression. In the book, Epic Recession: Prelude to Global Depression, written in late 2009, it was predicted the US and global economies would reach a juncture point to a potential transition circa 2012-14, during which time it would be settled whether today’s Type I epic recession would indeed transition to a Type II and a possible depression. The coming year, 2012, will reveal whether this process has begun, as the US and other economies weaken and the wild card of Euro banking instability runs its course. Should a bona fide banking crisis erupt in the Eurozone, it is all but certain that transition to a Type II epic recession will occur. The odds of a true global depression in turn will rise significantly.

from: Jack Rasmus, ‘Economic Predictions 2012’, Z Magazine, forthcoming January 2012

PART 2: PAST PUBLISHED PREDICTIONS 2008-11

…………………..
mass layoffs occurring later in 2008 and into 2009

the collapse of one or more of the mainstream banks in the U.S., setting off a major stock market correction of an additional 20-30 percent

record U.S. budget deficits of $700 billion plus

the rest of the global economy is slipping, along with the U.S., into a synchronized downturn

Both Fed monetary policy and the recent $168 billion Congressional tax cut package will prove grossly insufficient in dealing with the current financial crisis and recession.

Written: February 28, 2008
Published: Z Magazine, April 1, 2008, p. 36-37.

………………….
the economy is migrating toward very large job losses and unemployment over the next 18 monthsIt appears the current recession might attain 10 percent-plus levels of unemployment.

events since Bear Stearns represent not the beginning of the end (of the crisis) but rather the end of the beginning. (note: my parentheses)

Written: April 30, 2008
Published: Z Magazine, June 1, 2008, p 41, 38.
.

………………….
several U.S. big banks are still very much in trouble. The worst of the financial crisis in the U.S. may be yet to come.

Written: June 2008
Published: Amandla Magazine, August-September 2008, p. 35
..

………………….
The Fannie Mae/Freddie Mac bailout is inevitable so long as housing prices continue to drop, which they will.

housing prices will continue to fall at least another 20%. Foreclosures will continue to rise by the millions for some time.

Written: July 30, 2008
Published: Z Magazine, September 1, 2008, p. 38, 40

…………………..
Transferring the bad debt (of banks) to the government will cause a general fiscal crisis, the real budget deficit next year (2009) will be around $700-$800 billion–and that before the costs of the $1.6 trillion bailout are added. A fiscal train wreck is therefore coming. (my parentheses)

GDP will record a major drop in the third quarter of 2008 and jobless numbers will rise dramatically in the next few months. Companies will begin announcing mass layoffs in the final months of 2008.

Written: September 15, 2008
Published: Amandla Magazine, October-November 2008, pp. 20, 21 ..

………………….
The Obama campaign job creation proposals are

largely window dressing.  it is unlikely they will result in much job creation effect.

Written: October 30, 2008
Published: Z Magazine, December 1, 2008, p. 25
.

…………………
By the end of 2009 there will be effectively 25 million unemployed in the U.S. workforce: 15 million officially classified as unemployed, plus 5 million more discouraged and wanting to work if offered, and 10 million involuntarily working in part-time (equal to 5 million full time jobless).

Written: December 1, 2008
Published: Against the Current Magazine, January-February 2009, p. 7 An estimated 5 to 7 million (housing) foreclosures will occur over this cycle.

Written: January 30, 2009
Published: Z Magazine, March 1, 2009, p. 29

………………….
Concerning Obama’s $787 billion economic stimulus package:

it will not create many jobs

Written: February 28, 2009
Published: Z Magazine, April 1, 2009, p. 35
..

…………………
A series of several severe sovereign debt crises in Europe are a real possibility.

The Obama-Geithner PIPP-TALF-HASP bank bailout programs will produce few and insufficient results.

Foreign buyers of U.S. bonds–including Chinawill cut back on their purchases–that will set in motion a decline of the dollar.

Written: April 30, 2009
Published: Z Magazine, June 2009, p. 29
.

………………..

The possibility of a second banking crisis and panic in 2011-2014 is high.

The secondary tier of U.S. banks, the more than 8200 community and regional banks, will fail in increasing numbers in 2010

Bank lending to U.S. domestic businesses will continue to decline and remain stagnant.
Fed rescues will prove necessary to prevent commercial property defaults.

the big 19 banks will continue their trading binge, feeding credit to speculators in global currency markets, select offshore property markets, commodities, emerging markets, and exchange traded funds.

Should the Fed raise interest rates early, before 2011, the recent bubble in junk bonds will likely burst, as will the market for U.S. Treasuries.

job losses in 2010 will continue to rise. Should a jobs stimulus bill fail to be enacted in 2010, jobless ranks will rise to 27 million (from the current 24 million) and the governments truer U-6 unemployment rate will approach 19% (from 17.5%) by year end 2010. Hiring that does occur will increasingly include temporary and part time labor.

There will probably be no major second stimulus bill proposed or enacted in 2010.

The remaining TARP funds will be used in 2010 to pay for business tax cuts, as a pretext that more tax cuts (already 48% of the Obama stimulus bill of 2009) will create jobs.

Home foreclosures will rise past 7 million, on their way to a possible 10 million. Home asset prices will resume a decline. Between 33%-50% of homes will be under water.

State and local government tax revenues will fall and deficits rise, leading to more layoffs and wage cutting in 2010, unless the federal government provides additional aid to the states.

The Federal Reserve will continue its long run shift in policy priority to protecting the dollars value in world markets.throughout most of 2010 the Fed will keep interest rates at or near zero until the November elections. The fiction will end in 2011 as the Fed raises rates.

There will be no meaningful financial regulatory reform in 2010.

The U.S. dollar will drift lower slowly. An alternative global currency option will not displace the dollar. BRICs (Brazil-Russia-India-China) will increasingly trade directly with each others currencies.

the euro financial system will be shaken in 2010 by one or more debt defaults on its periphery.

Written: November 30, 2009
Published: Z Magazine, January 2010, pp 20-21