Jack Rasmus

INTRODUCTORY COMMENTARY:

LATER THIS MONTH, APRIL 2012, THIS WRITER’S MOST RECENT BOOK—“OBAMA’S ECONOMY: RECOVERY FOR THE FEW”—WILL BE AVAILABLE IN BOOKSTORES. THE BOOK IS AN ANALYSIS OF THE OBAMA ADMINISTRATION’S THREE ECONOMIC RECOVERY PROGRAMS INTRODUCED IN 2009-2011 AND RELATED FISCAL-MONETARY POLICIES OF THE PAST THREE YEARS.

THE BOOK ADDRESSES THREE QUESTIONS:

· WHY HAS THE RECOVERY BEEN THE WEAKEST ON RECORD SINCE 1947
· WHY HAS IT BEEN THE MOST ‘LOPSIDED’, BENEFITING MOSTLY BANKS, CORPORATIONS, INVESTORS, CEOs, AND THE WEALTHIEST HOUSEHOLDS
· AND WHY HAVE MORE THAN $12 TRILLION IN TAX CUTS, GOVERNMENT SPENDING, AND FEDERAL RESERVE ‘FREE MONEY’ TO BANKS RESULTED IN ONLY AN UNSUSTAINED ‘STOP-GO’ RECOVERY?

THE BOOK CONCLUDES BY OFFERING AN ALTERNATIVE PROGRAM FOR RECOVERY TO THE POLICIES OF THE PAST THREE YEARS.

THE FOLLOWING ARTICLE IS THE FIRST OF A FOUR PART ESSAY THAT SUMMARIZES THE ABOVE MAJOR THEMES OF THE BOOK.

· PART 1 DOCUMENTS HOW OBAMA’S ECONOMY HAS BEEN THE WEAKEST RECOVERY ON RECORD SINCE 1947
· PART 2 TO FOLLOW WILL DOCUMENT TO WHAT EXTENT THE PAST THREE PLUS YEARS HAVE BENEFITED THE WEALTHY AND THEIR CORPORATIONS.
· PART 3 WILL UPDATE THE BOOK’S THEMES BY EXAMINING WHAT HAS HAPPENED TO THE US ECONOMY SINCE NOVEMBER 2011. IS A RECOVERY FINALLY REALLY UNDERWAY, OR ARE WE IN YET ANOTHER, A FOURTH, STOP-GO SCENARIO?
· PART 4 WILL OFFER AN ANALYSIS WHY FISCAL-MONETARY POLICIES HAVE FAILED TO RESULT IN A SUSTAINED ECONOMIC RECOVERY IN THE U.S. SINCE 2007 AND WHY THEY WILL STILL CONTINUE TO DO SO AFTER THE UPCOMING NOVEMBER 2012 ELECTIONS.

(The first three parts of this series are combined in an article, ‘Obama’s Economy: The Limits of Economic Recovery’, that will appear in the May 1 Issue of ‘Z’ Magazine).

Part 1

Since January 2009 the U.S. economy has been mired in the weakest, most lopsided recovery on record since 1947. It has limped along the past three years in an historic ‘stop-go’ trajectory, during which two brief, shallow recoveries were followed in the summer of 2010 and again in 2011 by two short economic ‘relapses’—the latter defined as a condition where momentum toward recovery fails and the economy falls back to near stagnant growth in key economic sectors.

After two weak recoveries and two subsequent relapses, since last November 2011 the economy has been undergoing yet a third brief, shallow rebound. Although hyped by the media and public officials, this current ‘third recovery’ is limited once again only to certain sectors of the economy and is being driven by forces that are temporary and cannot be sustained. The ‘stop-go’ trajectory—characteristic of the US economy since early 2009—has therefore not been fundamentally checked or reversed. The economy remains on a path that will experience yet another relapse, or possibly an even worse double dip, sometime no later than 2013—as this writer previously predicted last January.

Forty-five months after the start of the current recession in December 2007, the U.S. economy as of October 2011 was therefore no larger in terms of GDP than it was in late 2007. In other words, nearly four years after the recession began there was no net additional economic growth. The net growth of the economy over the past four years was 0%. After nearly four years the economy was merely back where it began.

Repeated economic relapses since 2009 indicate an inability of the economy to achieve a sustained recovery. This failure to achieve sustained recovery stands in stark contrast to the 11 previous recessions that have occurred in the U.S. since 1947, the worst of which took place in 1973-75 and 1981-82. According to U.S. Commerce Department data, 45 months after its start of the 1973-75 recession the U.S. economy had grown by 15.95%, or at a rate of 4.25% per year. Similarly, 45 months after the start of 1981-82 recession, the economy had grown by 13.65%, or at a rate of 3.64% per year. Another way to illustrate the historic weakness of the current recovery is to consider the rates of annual GDP growth for the two non-recession years following the end of each of the three recessions: 1976-77, 1983-84, and 2010-11. The following Table 1 provides the comparison:

TABLE 1
Percent Change in Gross Domestic Product After Recessions
Source: Bureau of Economic Analysis, Historical Table 1.1.1

1973-75 Recession   1981-82 Recession     2007-09 Recession

1976: 5.4% GDP           1983: 4.5% GDP           2010: 3.0% GDP
1977: 4.6% GDP          1984: 7.2% GDP            2011: 1.7% GDP

Once again the comparison is dramatic. The recovery the past two years has averaged barely 2% per year, after a fiscal stimulus of more than $3 trillion and monetary stimulus of more than $9 trillion. In contrast, prior recoveries from the two worst previous recessions averaged two and three times that. Furthermore, even the current 2% is a high-side estimate and is about to weaken further in 2012.

The Obama ‘recovery’ since 2009 has been the weakest of the 11 previous recessions on record not simply in terms of GDP growth, but the weakest in the three critical areas of jobs, housing, and state-local government. These three key areas have hardly participated at all in recovery since 2009. This fact in turn explains much of why the U.S. economy today still remains locked in a ‘stop-go’ trajectory and why another relapse is virtually guaranteed, or why an even more serious double dip recession in 2013 is increasingly possible.

For example, as of the official end of the recession in June 2009, there were a total approximately 25 million unemployed. After more than $3 trillion dollars in tax cuts and government spending by the Obama administration, today about 23 million are still jobless. That’s a cost of about $1.5 million per job. Since mid-2010 Obama has placed his bet on manufacturing, exports, and free trade to lead the jobs recovery. He put multinational corporation CEO, Jeff Immelt, in charge of his ‘Jobs Council’. Immelt delivered more free trade deals, more tax cuts for multinationals, and more deregulation of business as the latest ‘jobs program’. But manufacturing has not led a jobs recovery. There were 11,869,000 manufacturing jobs in the U.S. in June 2009; at year end 2011 there were 11,790,000 manufacturing jobs, for a net decline of nearly 80,000. So much for a manufacturing-driven jobs recovery.

The sad state of administration jobs creation program is illustrated by the recent misnamed JOBS (‘Jumpstart Our Business Start-Ups’) bill passed by Congress—a bill about jobs in name only and, in fact, a proposal for more business financial deregulation, more freedom for financial speculators, and more small business tax cuts.

In the housing sector, 3.6 million homes were foreclosed during the recession years of 2007 and 2008. Yet during the first three years of the Obama administration there were an additional 8 million homes foreclosed, with the number projected to rise by at least another million or more in 2012, according to the industry source, Realtytrac. While a couple dozen big banks got $9 trillion in bailouts from the Federal Reserve, 8 million homeowners facing foreclosure got nothing in mortgage principle reductions or else were given a pittance of less than $10 billion in temporary, partial interest rate reductions under the Obama HASP and HAMP housing programs introduced in 2009.

The Obama administration’s recent HARP 2.0 is another handout to the big 5 bank mortgage lenders. HARP is supposed to require mortgage lenders to refinance principle owed by homeowners with mortgages in ‘negative equity’, something the lenders have successfully blocked for three years now. In exchange for doing so, the Obama administration has forced States’ attorneys general to accept a $26 billion ‘cap’ on legal suits pending against the mortgage lenders arising out of the 2010 ‘robo-signing’ housing scandal where millions of homeowners were illegally foreclosed and thrown out of their homes by the banks. But HARP is already being gamed by the banks. As they put aside funds for refinancing negative equity mortgages, they are raising mortgage interest rates and fees on all non-negative equity mortgage applications to cover the cost of the negative equity refinancings. In other words, charging non-negative equity homeowners more to pay for the negative equity homeowners. Immediately upon announcement of HARP, mortgage rates began once again to rise, thereby dooming any nascent housing recovery.

In the previous worst recession in the 1970s and 1980s, the loss of jobs in the private sector were offset by hiring by state and local governments, thereby dampening the depth and duration of the recession and accelerating the recovery process. In contrast, since June 2009 state and local government has not only not increased hiring to offset private sector job loss, but has itself become the biggest contributor to job loss. From June 2009 through 2011 the number of state and local government workers declined by more than 640,000—most of them teachers.

The answer to the question previously posted—i.e. why has the Obama recovery been so short and shallow, so uncertain, and characterized by repeated relapses—can be explained in large part by the failure of Obama policies to address jobs, housing, and state-local governments. There have been three distinct economic recovery programs introduced by the Obama administration—in early 2009, late 2010, and late 2011. The fact that a third has been introduced in the past six months is testimony to the failure of the first two. But none of these three programs have resulted in a rapid recovery of jobs; none have resolved the foreclosure mess and continuing veritable depression in housing; and none have succeeded even remotely in stabilizing state and local government finances that would prevent layoffs, cuts in services, or rising local taxes and fees.

The importance of jobs, housing, and state-local government spending to recovery is evident by the fact there has never been a recovery from any recession since 1947 without increased spending and hiring by state and local government; without the housing sector recovery leading the way; or without job creation averaging at least 400,000 to 500,000 each month for at least six consecutive months.

The logical question of course is why has there not been a sustained recovery thus far—after more than $1.5 trillion in federal government spending since early 2009, after more than another $1.5 trillion in tax cuts, and after the Federal Reserve, the central bank of the U.S., has pumped in more than $9 trillion in virtually ‘free money’ into the banks (by purchasing at full price mortgage and other bonds worth pennies on the dollar and after lending banks all the money they can carry away at a mere 0.1% to 0.25% interest rates)?

The answer to the question is that a pittance of the cumulative $12 trillion of fiscal and monetary stimulus since 2009 has ‘trickled down’ to job creation, to stopping foreclosures or stimulating the housing sector, or to increase state-local government spending. What was once called the ‘trickled down’ economy in the U.S. in the past has basically changed since 2008. It has become, at best, a ‘drip-drip’, leaky faucet economy, with most of the $12 trillion spent by Congress and the Federal Reserve having been siphoned off by large multinational corporations and the big 19 banks, by speculative investors manipulating commodity, oil, and currency markets, by CEOs, hedge fund, and private equity managers ensuring huge personal income gains for themselves, and by the wealthiest 10% of households in the U.S., about 1 million of the approximate 130 million households in the U.S., reaping the harvest of record stock and bond market expansion set in motion by trillions of dollars of Federal Reserve free money.

Jack Rasmus, April 3, 2012

Jack’s book, Obama’s Economy: Recovery for the Few, is published by Pluto Press and Palgrave-Macmillan. It is available online April 1 at Amazon and from the author’s website, http://www.kyklosproductions.com, and his blog, jackrasmus.com