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By Dr. Jack Rasmus
August 7, 2020

Today, August 7, 2020 negotiations on an economic stimulus package between US House Democrats and the White House broke down and broke off. What’s behind it?

In recent days the Democrats’ leaders, Nancy Pelosi and Chuck Shumer, reportedly reduced the cost of their original ‘Heroes Act’ proposals by $1 trillion. Instead of the original cost of $3T in the Heroes Act passed last June, they were willing to agree to a reduced package of $2 trillion. Never mind the attempt to reach a compromise on some middle ground. The White House, Thru his assigned negotiator, staffer Mark Meadows, Trump rejected the Dems offer.

Meadows reportedly slammed the table (a two-bit amateur negotiating tactic) and walked out of negotiations with Pelosi-Shumer in a huff. Meadows’ walkout appears a well planned set up in the works for some time.

What does this mean? Politically and for the economy, now showing clear signs of the mild rebound of May-June dissipating in recent weeks?

On one level it’s clearly a typical Trump negotiating tactic: Bring a deal to a near close, then make a big show and angrily walk away. Trump’s done that before on numerous occasions. We saw it in the trade negotiations with China in 2018 and again 2019. It didn’t work then with the Chinese trade negotiators, and will likely not work here again—assuming the Dems don’t lose their backbone and fall for the set up, which has been known to happen in the past.

Trump coyly stayed on the sidelines in the early phase of the negotiations between the Dems and McConnell in the Senate and Mnuchin at Treasury.

He let McConnell in the Senate carry the early bargaining water. But McConnell’s extreme ideologue wing, led by Rand Paul and others, revolted. They said they couldn’t support any kind of new stimulus because of its impact on the government’s deficit and debt. However, this same Rand Paul-led crew in just one day last week quickly approved a record $760B Pentagon spending bill. Nor did these same folks have any problem approving tax cuts worth $5 trillion in the past two years under Trump. Nothing said about that impact on the budget and national debt.

And its these same hypocrites in the Senate who have been arguing the $600/wk. unemployment benefits for workers under the March 2020 Cares Act were ‘too generous’. The benefit was keeping workers from returning to work, although at least a half dozen university studies—from Harvard, Yale and Princeton—concluded it’s not so.

McConnell’s withdrawal to the sidelines in negotiations in early July—allowing Trump, Meadows and Mnuchin to take the lead in negotiations on the stimulus—may be part of the Republican strategy as well. UP until recent weeks, McConnell and Mnuchin were respectively playing ‘hard cop’ and ‘soft cop’ with Pelosi-Shumer. McConnell wouldn’t budge, which let the Dems pursue compromise with Mnuchin as lead for the Trump negotiations. Mnuchin and the Dems actually made some headway and some compromises. Mnuchin sucked them in, getting them to reduce their original Heroes Act $3T proposals to $2T. They were being set up.

Then Mark Meadows, Trump’s hatched man, joined in taking over the negotiations and played hard cop to Mnuchin’s soft cop. Now Meadows broke off discussions and stomped out today, August 7. The tactic is transparently designed to get the Dems to reduce their position even further. Propose more than the $1 trillion concessions already made this past week as the cost of getting Meadows to return to the bargaining table. If they do, it makes Trump look tough and in control of the negotiations agenda. And if they don’t, then Trump moves on to legislative by executive action—which also puts him in the appearance of control and the sole person producing the stimulus package.

Trump also wants to put his ‘mark’ on the negotiations, as is always the case. He wants it to look like the parties couldn’t come together, but he was able to hammer out a deal. ‘The Art of the Deal’, right?

And there’s another more insidious objective here. Trump’s been signaling for weeks he’d like to inject his own pet demands and is ready to do so by executive order once again if necessary. He wants to legislate by executive order. He pulled it off before, setting a precedent. That was when he spent money for his wall by shifting it from the Defense Dept., prepared to restore the diverted funds back to the Defense Dept. at a later date. Republican proposals on the table, by the way, provide another $29 billion for the Pentagon—over and above the just awarded Pentagon spending of $760 billion. Now he’ll make a similar move: he’ll divert funds by executive action to pay for his new tax cuts and other measures taking money from some other pot, present or future, to pay for it. Dems in Congress will be left standing saying ‘hey, you can’t do that’, but it’ll already be done.

Breaking off negotiations now gives Trump the opportunity to introduce his proposals by executive order. To do so is clearly unconstitutional but that means nothing to Trump. He’ll soon announce his own stimulus proposals and start executive orders implementation . He’ll use that fait accompli to force the Dems to agree to them if they want to be part of any final stimulus deal. And if they don’t,” so what” he’ll say. “They couldn’t get it passed. I did.”

But as the failure to pass a new fiscal stimulus drags on, 14 million workers will lose their supplemental $600/wk. unemployment benefits. That’s roughly $85 billion a month taken out of US GDP, in reduced household consumption. Failure to pass a stimulus also means that 12.3 million renters will be evicted before November, according to the most conservative survey. Some surveys estimate as many as 28 million will be evicted. And no more money for state and local governments facing a growing fiscal crisis that will soon require them to start mass layoffs in September.

The McConnell-Trump strategy is not to bail out state and local governments. It’s about making the high urban population centers—located largely in ‘blue’ states—to bear the brunt of the continuing economic crisis. If they need more money, let them go to the municipal bond market and borrow more. It’s a blue state problem, they argue. Let them sink with it is the Republican view. Or else cut their too generous public employee benefits and pensions.

To sum up, the strategic objectives behind Trump’s ordering his man, Meadows, to break off negotiations are several: inject Trump to the center of the negotiations in the last phase of bargaining so he can take credit for any subsequent deal. Second, allow Trump to raise his pet proposals—like making the payroll tax cut permanent—to the top of the bargaining agenda with the Dems. Third, let McConnell off the hook and avoid creating a split within his Republican ranks over deficits in order to forge a deal. Fourth, expand Trump’s attack on the legislative and purse strings authority of the US House of Representatives, and thereby push the presidency toward usurping legislative authority still further than it already has.

Trump is not only a tyrant—i.e. someone who sees himself above the law—as witnessed by his recent pardons and his own numerous public statements about himself as president; he is also a classic usurper, attempting to shift legislative authority via executive action from Congress to himself; and he is also moving toward rule by decree—aka a dictator—which is a hallmark of all authoritarian and would-be fascist rulers.

And we should watch out for more ‘rule by decree’ attempts in coming months as he invokes one or more ‘national emergency declarations’ to deal with America’s current triple crises—political as well as economic and health.
With Trump forcing a break-up of the recent fiscal stimulus negotiations, and his to be announced executive orders, the political-constitutional and economic crises in America are becoming increasingly entangled. It almost seems as if Trump’s grand strategy may be to exacerbate the deepening crises as much as possible before November 3, in order to create a pretext for him to declare the election void and challenge the results.

Dr. Jack Rasmus
August 7, 2020

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How is it that weekly unemployment benefits filings have topped 2m for 20 consecutive weeks now, but US Labor Dept. monthly job reports show 9.2 million total new jobs created from May thru July? How is it that 31 million are still collecting unemployment benefits but the official US govt unemployment rate has fallen to only 10% (roughly 15m out of a labor force of 150m)?

Listen to my most recent brief 15 min. radio interviews on the condition of jobs, unemployment benefits, and Congressional lack of action.





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Dr. Jack Rasmus
Copyright 2020

This past week US economy collapsed in the 2nd quarter by 32.9% at annual rate and nearly 10% just for the April-June period. Never before in modern US history—not even in the worse quarters of the 1930s great depression—has the US economy contracted so quickly and so deeply!

All the major private sectors of the US economy—Consumption, Business Investment, Exports & Imports—collapsed in ranges from -30% to -40% in the April-June period. That followed first quarter prior declines in single digits as well. More than $2 trillion in real economic activity was wiped from the economy. Consumption collapsed by more than -1.5 trillion. Business investment by nearly -$600 billion. Ditto net trade and even state & local government spending.

Even more foreboding is that the April-June collapse came as the economy opened up in June virtually everywhere and in many states even before in May. So the 2nd quarter collapse—as deep as unprecedented as it was—reflects a rebound of economic activity during the last six weeks of the quarter.

More worrisome still, even the weak May-June rebound has begun showing signs of stalling out as of mid-July, according to latest economic indicators.

Fading 3rd Quarter US Economy

Here’s some emerging evidence of that stall-out now beginning:

Jobs Deteriorating Once Again

Weekly initial unemployment claims began to rise after mid-July. The numbers of new jobless claims are now consistently in the 2.2m-2.4m per week range as the economy enters August. Officially more than 32m are now collecting benefits. Millions more are still trying, or running out of them. Add to that the more than 5 million more workers who simply dropped out of the labor force since February. They’re not even calculated in the unemployment rate, according to official US government practices. So there’s easily 40m jobless out there in America—a number that’s remained pretty constant for months now. 40m unemployed is roughly a 25% unemployment rate, same as that during the worst of the 1930s great depression.

On Friday, August 7 the US Labor Dept. will report jobs and unemployment numbers for July. The reported consensus among economists is that it will likely show only 1.6m new jobs created, according to a survey reported by Reuters—a sharp slowdown after June’s numbers showed 4.8m. But 3 million of June’s new jobs represented workers returning to restaurants, hospitality, and retail work as the economy was reopened (prematurely) in May-June. Now, as the Covid virus has surged again in July, many of those 3 million who returned to work in May-June are being re-laid off in July or returning to sheltering as 30 states have again re-initiated partial shutdowns.

In addition to the Covid surge effect on jobs, scores of large companies have, independently of the virus effect, begun announcing mass layoffs by the thousands and tens of thousands. They have determined the economy’s situation is far worse than reported by the media or Trump administration and are planning for a long recession. Their layoffs will be mostly permanent due to long term restructuring.

If the 32m now collecting jobless benefits, plus those waiting to still get them, plus those who gave up and dropped out of work altogether equal 25% unemployment, how is it then that the US government keeps saying unemployment is only 11.1%?

It’s because that 11.1% is a cherry-picked low ball number for public consumption that conveniently represents only full time workers unemployment. If part timers laid off were included, even per the government’s own figures that’s 18%. Those numbers also don’t accurately count those who left the labor force or reflect the number of ‘gig’ jobs that are picked up as part of the 25% unemployed in the unemployment benefits numbers.

Another indicator of the renewed deterioration of the labor markets is the number of job openings reported by the government. That too has begun to trend down once again after mid- July just as the unemployment benefits claims began to rise in tandem.

US Manufacturing & Construction Stagnant At Best

Manufacturing and construction account for roughly 20% of the US economy and GDP. The spin since the US economic reopening began late May has been all sectors of the economy have been bouncing back—services, manufacturing, construction. Facts show otherwise.

In Manufacturing jobs have continued to decline every month, according to Purchasing Managers Indexes (PMI) More companies continued to lay off workers in manufacturing than hire them during May-June. Manufacturing output continued to contract through June, with a reading of 49.8 (less than 50 indicates contraction). That rose to 51.3 in first half of July, but contracted again at the close of July finishing the month of July essentially stagnant at 50.9, according to the business research firm, HIS Markit.

The condition was roughly the same for construction. Per the US Commerce Dept., construction activity continued to decline by -1.7% in May and another -0.7% in June during the period of the economy’s reopening.

So with services’ industries and occupations re-shutting down in July once again, and with Manufacturing and Construction, stagnating at best—by end of July 2020 the US is teetering on the edge of faltering and ending the brief, weak and tentative economic rebound of late May to early July.

Household Income & Consumption in Trouble

Consumption spending by households represents 70% of the US economy and GDP. The main determinant of household spending for the more than 100 million US working/middle class households is their wage income or, for working class retiree households, their pensions, social security benefits, & other income. Household income for tens of millions is now in a precarious state and is being reflected in reduced spending already.

According to a US Census Bureau report in July, 22% of households report that they now, as of July, can’t make their rent or mortgage payments. There are roughly 70 million renting households in the US. That’s more than 15 million US households and more than 30 million Americans!

According to Urban Institute research, it will cost $7.3B a month to keep renters and homeowners in their homes. That’s a little more than $50B for the next six months. But Republicans—Mnuchin, McConnell & Trump—all adamantly refuse to provide any of the $7.3B assistance. On the other hand, they quickly approved roughly $20B in the March Cares Act for Defense corps making billions in profits, passed the $760B in new money for the Pentagon in one day last week, and now propose another $30B for their Pentagon-Defense Corp. friends in their HEALsAct stimulus proposal announced in July.

Apart from the $760B new record Pentagon budget just passed in the blink of a political eye, that’s roughly $50B in new money for the Pentagon instead of $50B to keep tens of millions of working class households in their homes for another six months!

Already evictions of renters and foreclosures of homeowners are rising fast. It’s something of a myth that even the Cares Act of last March introduced a moratorium on rent evictions. First of all, that addressed only one third of the available rents—i.e. those backed by US government financing. Two-thirds have always been exempt. Even the one-third was not enforceable, moreover. Many areas of the US have continued with evictions throughout the pandemic period.

And now evictions are accelerating even faster in July, now that the Cares Act measure expired on July 25. No fewer than 12.3 million renters covered by the Cares Act lost their moratorium late July. That evictions acceleration, now underway, has resulted in reduced spending and consumption since mid-July and will no doubt depress spending even more into August and beyond.

In addition to the Housing crisis depressing income and consumer spending, there’s the parallel crisis of more than 15 million newly unemployed having no medical insurance. Studies show clearly those without insurance tend to spend less to save for medical expenses. A Commonwealth Health Care Fund survey in late June found that 21% of workers laid off lost all health insurance coverage from their employer and all sources during layoff since March. That means at least 8 million additional US households without health insurance since March. 8 million more—and rising as new unemployment claims also rise—who will spend less and compress consumption further and therefore US GDP in 3rd quarter.

Yet another major factor portends a slowing of household spending and consumption, further dampening any economic rebound: Congress’s reduction of unemployment benefits.

Debate is now intensifying in Congress on the scope and magnitude of a so-called ‘5th stimulus’ legislative package. At the heart of the debate is whether to continue the $600/week federal supplemental unemployment benefits instituted last March under the Cares Act. The cost of the $600/wk. benefit was estimated in March at $340 billion, for a period of four months. Were the $600 eliminated altogether, it would thus take roughly $85B a month out of the US economy.

Republicans in the Senate have proposed an immediate reduction of the $600 benefit to $200. Hidden in the proposal is a further reduction after two months at $200, by integrating the federal benefit with state unemployment benefits and capping both at $500. So at least 3/4s of the $600 would end, taking nearly $65B a month in spending out of the economy starting in August and for however long the benefit continue.

It is not surprising given the rising unemployment claims, pending evictions, growing ranks of health uninsured, and prospects of ending significant unemployment benefits—not to mention the resurge of the virus and growing partial re-shutdowns across dozens of states—that household consumer confidence shows evidence of fading in July as well. University of Michigan’s survey—considered the gold standard of the confidence research—recently reported that consumers’ expectations for the US economy over the next six months continue to slip further. In March 2020 the overall index fell to only 72.5, a historic low (>100 means positive; <100 means failing confidence). That remained at 73.2 in June despite the economy reopening. The next six months expectations index in June was 72.3 but by mid-July had deeply contracted further to only 65.9. Clearly, consumers are not optimistic where the economy is about to go and, to the extent their expectations affect their spending, the latter is not likely to recover soon.

In short, escalating housing evictions, more loss of health insurance coverage, and reduction of weekly unemployment benefits for tens of millions of Americans and households can only further significantly depress household consumption—70% of the economy—and thus undermine the already weak and fading May-June economic rebound.

Fading US Economic Rebound in Historical Perspective

During the depths of the crash in March-April, Trump, his administration spokespersons, much of the mainstream media, and many economists were predicting the crash would soon produce a just as rapid snap back of the economy beginning in June. That was called the ‘V-Shape’ recovery.

But recoveries are sustained, whereas ‘rebounds’ are not. This writer was publicly predicting last March the V-shape prediction was a fiction. At best, the trajectory of the US economy would prove to be ‘W-Shape’—as have all great recessions of which the current contraction has proven to be among the more severe. (Other ‘great recessions’ have occurred the last century in 1908-13, 1929-30, and 2008-11. None were V-shape. All were to some degree ‘W-shape’. And in one case, the ‘W’ transformed into an extended ‘U’ and the great depression of the 1930s.

W-shape trajectories are typical of great recessions. W-shape means a deep initial contraction of the economy is followed by a weak rebound, which then dissipates and produces a subsequent economic relapse in terms of growth and GDP. The relapse may take the form of a dramatic slowdown in the rebound or in the economic growth rate totally stalling out and economic stagnation occur next quarter. Or, yet a third possibility is that the relapse may prove even more severe and result in a renewed contraction once again—i.e. a double dip recession. In a W-shape typical great recession trajectory, the stagnation or double dip is in turn followed by another brief and weak ‘rebound’. And that rebound followed by yet another relapse. Triple dips are not impossible. That’s what happened to Japan after 2008 and almost to Europe as well after 2014.

This ‘bouncing along the bottom’ trajectory following the deep initial crash may go on for months and years—as was the case in the US after 1908 and again after 2009 as well.

Or, alternatively, the stagnation or further economic contractions may lead to a subsequent financial and banking crash that drives the economy even deeper, ratchet-like, to become a de facto economic depression. That was the case after 1930.

What’s happened to date in the US, from early March through July 2020, shows the US economy has clearly fallen into a great recession again–and this time three times deeper than in 2008-09 and in one third less the time!

It is unprecedented. And it represents totally new territory that mainstream economists have no analog experience from which to speculate as to its medium and longer term trajectory into 2021. Indeed, the mainstream economics community has no clue. They are content, as they typically are won’t to be, with predicting the present instead of the future—although very few now bother to say it’s a V-shape recovery. Only the polyannas in the Trump administration still adhere to that nonsense and that fiction.

The first phase of the 2020 Great Recession has passed. That was the deep and rapid contraction of 10% (32.9% annualized). The second phase began with the weak June rebound that continued into early July. The question now is whether that weak rebound will transform into a relapse in the form of a rapid slowing of the economy once again—i.e. a third phase. Or perhaps just a second phase, with the weak rebound of May-June representing a juncture or transition between phases.

Beyond the coming 3rd quarter the central question is whether the US economy will experience yet another weak, short and shallow economic rebound? If so, the W-shape trajectory of the current Great Recession 2.0 will be further confirmed. Another possibility is the contraction will even out and settle into a longer term stagnation. Yet a third outcome is further shocks to the economy will drive it into yet another sharp and deep contraction.

There are three possible ‘drivers’ that would result in the latter outcome: a failure of Congress and policy makers to introduce a sufficient fiscal stimulus directed at household consumption stimulus; a major political and constitutional crisis occurring surrounding the November 3 national presidential elections; or a chain reaction contagion in financial markets provoked by spreading business defaults and bankruptcies—either in the US or abroad.

The nation should know fairly shortly whether Congress—driven by Republican and conservative-radical ideologues—fails to pass sufficient fiscal stimulus as the economy fades in the 3rd quarter.

The second outcome is becoming increasingly likely by the day. Trump clearly has no intention of leaving office by normal processes. A close electoral college vote will further ensure a political crisis in the US of dimensions never before experienced. The economic consequences will prove severe. Those possible scenarios will be described shortly in another article.

Third, although a major financial instability event is not yet imminent, the longer the W-shape great recession trajectory continues, the more likely such an instability event becomes. Moreover, when it does, it will appear swiftly, unexpectedly, and no less severely in terms of its impact on the real economy of households, workers, and even businesses in general.

Dr. Jack Rasmus
August 3, 2020

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For a shorter, 15 min. commentary on the US GDP report released yesterday, listen to my interview today with Loud & Clear radio show. (For the longer hour commentary, my own Alternative Visions radio show today in the link and podcast below it).

    TO LISTEN to the 15 min. Short Version GO TO


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Listen to my July 31 Alternative Visions radio show podcast dissecting the 2Q US GDP -32.9% Collapse and why the #3rd Quarter Rebound is also fading. 4 Myths about the US economy’s ‘recovery’ discussed and what may occur yet to trip the current recession into a bona fide great depression by 2021.




Dr. Rasmus dissects the just released data for US economy’s 2nd quarter GDP stats, confirming his March prediction of W-shape recovery, no V-shape and no 2nd half recovery. The 4 myths are discussed: Fast recovery in second half 2020; US economy was strong in 2019; consumer households were doing great in 2019 and will bounce back again in 3Q20 if the economy reopens; Congress’s March 2020 Cares Act is sufficient stimulus for sustained recovery. (i.e. Republicans’ message there’s no need to rush to another massive stimulus bill). The two great ‘wild cards’ that could throw the US economy into depression in 2021: Trump’s generated political-constitutional crisis around Nov. elections + financial instability in 2021 as business and household defaults deepen.

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As an addendum and follow up to my recent post,’What Lies Ahead’, listen to my Alternative Visions hour radio show of Friday, July 18, 2020, for my continued discussion of the themes in the ‘What Lies Ahead’ post.

To Listen GO TO:

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What Lies Ahead

On July 6, 2020 I posted my extended view and analysis why the 3rd quarter US GDP would falter–and lead to a W-shape recovery, as it typical of all Great Recessions. The current recession’s scenario was compared with 1929-30 and 2008-09, and 8 reasons were given why the US current economic rebound (not recovery) would falter. In this follow-on post a somewhat longer term scenario is added to the prior shorter, 3rd quarter view. It’s an addendum and sequel to the prior post, focusing on the more permanent impacts on the economy that will continue well into 2021 and beyond. Here’s the addendum piece, “What Lies Ahead”


The US economy at mid-year 2020 is at a critical juncture. What happens in the next three months will likely determine whether the current Great Recession 2.0 continues to follow a W-shape trajectory—or drifts over an economic precipice into an economic depression. With prompt and sufficient fiscal stimulus targeting US households, minimal political instability before the November 2020 elections, and no financial instability event, it may be contained. No worse than a prolonged W-shape recovery will occur. But should the fiscal stimulus be minimal (and poorly composed), should political instability grow significantly worse, and a major financial instability event erupt in the US (or globally), then it is highly likely a descent to a bona fide economic depression will occur.

The prognosis for a swift economic recovery is not all that positive. Multiple forces are at work that strongly suggest the early summer economic ‘rebound’ will prove temporary and that a further decline in jobs, consumption, investment, and the economy is on the horizon.

A Second Wave of Permanent Job Losses

Through mid-June to mid-July, the COVID-19 infection rate, hospitalization rate, and soon the death rate, have all begun to escalate once again. Daily infections consistently now exceed 60,000 cases—i.e. more than twice that of the earlier worst month of April 2020. Consequently, states are beginning to order a return to more sheltering in place and shutdowns of business, especially retail, travel, and entertainment services. The direction of events cannot but hamper any initial rebound of the economy, let alone generate a sustained economic recovery.
Exacerbating conditions, a second wave of job layoffs is clearly now emerging—and not just due to economic shutdowns related to the resurging virus.

Reopening of the US economy in June resulted in 4.8 million jobs restored for that month, according to the US Labor Department. That number included, however, no fewer than 3 million service jobs in restaurants, hospitality, and retail establishments. These are the occupations that are now being impacted again with layoffs, as States retrench once more due to the virus resurgence underway. But there’s a new development as well: A second jobless wave is now emerging in addition to the renewed layoffs due to shutdowns not only of the resumed service and retail occupations, but reflecting longer term and even permanent job layoffs across various industries.

Household consumption patterns have changed fundamentally and permanently in a number of ways due to both the virus effect and the depth of the current recession. Many consumers will not be returning soon to travel, to shopping at malls, to restaurant services, to mass entertainment or to sport events at the levels they had, pre-virus.

In response, large corporations in these sectors have begun to announce job layoffs by the thousands. Two large US airlines—United and American—have announced their intention to lay off 36,000 and 20,000, respectively, including flight attendants, ground crews, and even pilots. Boeing has announced a cut of 16,000, and Uber,n just its latest announcement, a cut of 3,000. Big box retail companies like JCPenneys, Nieman Marcus, Lord & Taylor, and others are closing hundreds of stores with a similar impact on what were formerly thousands of permanent jobs. Oil & gas fracking companies like Cheasepeake and 200 other frackers now defaulting on their debt are laying off tens of thousands more. Trucking companies like YRC Worldwide, the Hertz car rental company, clothing & apparel sellers like Brooks Brothers, small-medium independent restaurant and hotel chains like Krystal, Craftworks—all are implementing, or announcing permanent layoffs by the thousands as well.

Reflecting this, since mid-June new unemployment benefit claims have continued to rise weekly at a rate of more than 2 million—with about 1.3 million receiving regular state unemployment benefits plus another 1 million independent contractors, gig workers, self-employed receiving the special federal government unemployment benefits. The latter group’s numbers are rising rapidly since mid-June.

As of mid-July no fewer than 33 million are receiving unemployment benefits, with another 6 million having dropped out of the labor force altogether and no longer even being counted as unemployed. Unemployment therefore remains at what will likely be a chronically high number, at around 40 million—with about 25% of the US labor force unemployed—as renewed service-retail sector layoffs, plus new permanent layoffs, both loom on the horizon.

Added to the growing problem of renewed service layoffs and the 2nd wave of permanent layoffs in the private sector is the growing likelihood of significant layoffs in the public sector, as states and cities facing massive budget deficits are forced to lay off several millions of the roughly 22 million public sector workers in the US. This potential public employee layoff wave will accelerate and occur sooner, should Congress in summer 2020 fail to bail out the states and cities whose budgets have been severely impacted by the collapse of tax revenues while facing escalating costs of dealing with the health crisis. Estimates as of last May are that the states and cities will need $969 billion in bailout funding this summer—roughly two-thirds for the states and the rest for cities and local governments.

The resurgence of layoffs from all these sources is a sure indicator that the economy’s rebound—let alone recovery—is in trouble. Rising joblessness means less wage income for households and therefore less consumption and, given that consumption is 70% of the economy, a slowing of the rebound and recovery. Problems in consumption in turn mean business investment suffers as well, further slowing the economy and recovery. Exacerbating the decline in personal income devoted to consumption due to unemployment is the evidence that even those fortunate enough to return to work after spring 2020’s economic shutdown are doing so increasingly as part time employed—which means less wage income for consumption compared to the pre-COVID period before March 2020.

Overlaid on these negative prospects for employment, consumption, business investment is the intensification of economic crisis-related problems.

Rent Evictions, Child Care & Education Chaos

There is an imminent crisis in rents affecting tens of millions. At the peak in April, it is estimated that roughly one-third of the 110 million renters in the US economy had stopped making rent payments due to the COVID-related shutdowns of the economy. The CARES ACT, passed in March, provided forbearance on rental payments, although perhaps as many as 20 states failed to enforce it. That forbearance directive expires at the end of July, with as many as 23 million rent evictions projected in coming months. A major housing crisis is thus brewing, as well as the second wave of job layoffs.

A combined education-child care crisis is about to occur almost simultaneously. The K-12 public education system is approaching chaos, as school districts plan to introduce remote learning on a major scale in order to deal with the renewed COVID-19 infection and hospitalization wave. The heart of the crisis is that tens of millions of US working class families dependent on two paychecks to survive economically cannot afford to accommodate school district practices for remote learning—especially for young children in the K-6 grade levels. Even if such families could afford to pay for expensive child care, the current US child care system is far from being able to accommodate them. Many minority and working class households, moreover, lack the computers and networking equipment, or even the requisite skills to set it up, to enable their children participate in remote learning.

Several forces are driving the shift to remote learning: school district fears of liability actions by parents if children become ill, the significant cost of ensuring disinfected classrooms, the lack of classroom space to allow distance learning on site, and the growing concern of teachers regarding their own exposure to infection. At least 1.5 million public school teachers are over age 50 and have health conditions that put them at greater risk of serious infection, should they attend closed-in classroom environments.

The child care plus K-12 education crisis will likely erupt within months on a major scale. Chaos in education is around the corner.

This fall, higher education—colleges and universities—will also experience chaos of their own kind. While distance learning will not be as serious an implementation problem as it will in K-12 levels, costs from the pandemic will force many smaller, private colleges into bankruptcy, consolidation or closure. Public colleges’ funding problems will require them to sharply reduce available services. Remote education will create a two-tier system of higher education—educational services delivered remotely and those of a more traditional nature on campus; or a hybrid of both.

However, demand for higher education services will likely decline sharply in the short term, during which higher education will experience a devastating decrease in tuition and other sources of college revenues. Some estimates show a third of freshmen plan to take what’s called a ‘gap year’: i.e. accept entrance but not attend for a year. That’s a massive revenue loss. Some estimates foresee a 15%-30% decline in new student attendance, with another 5%-10% decline in transfer students, and a similar decline of 5%-10% in continuing students. In addition, the attendance by international students, the ‘cash cow’ for most colleges, will also decline sharply due to the Trump administration’s new rules.

Still other developments will sharply reduce college revenues. Students forced to attend classes via remote learning will demand lower tuition. One can expect a wave of legal suits as students seek to ‘claw back’ full tuition expenses. Other secondary sources of college revenues—from fees, on-campus room and board, endowment earnings and gifts, and sports revenues—also spell a looming revenue crunch.

A wave of college consolidations and closures is inevitable. And with student loan debt at $1.6 trillion it is unlikely that the federal government will introduce new aid through that channel. Nor will States increase their subsidization of public colleges, given the severe state budget deficits on the horizon.
In short, the economic crisis is about to assume more socio-economic dimensions and character: rent, child-care, education chaos will soon overlay the continuing unemployment problem and worsening recession. Social and political discontent, frustration, and anxiety are almost certainly to rise in turn in coming months as a consequence.

Global Recession & Sovereign Debt Defaults

The weakness of the global economy is yet another factor likely to ensure the US economy’s W-shape trajectory. As noted previously, with 90% of other countries in recession, global demand for US exports will remain weak or declining. In addition, global supply chains have also been severely disrupted by the health crisis, or even broken, and will not be restored soon. The global economy is suffering from deep problems of both demand and supply. This too is a unique historical event. Never before have demand and supply problems occurred congruently. Together, they increase the potential for a global depression.
Commodity producing economies have been hard hit, especially oil and metal producing countries. Many were in a recession well before the COVID health crisis. Global trade in general had stagnated, registering little to no growth in 2019, for the first time since modern records were kept. Many countries had over-extended their borrowing, expanding their sovereign debt loads during the last decade. This was money capital borrowed largely from western banks and capital markets (i.e. shadow banks).

Now, with global trade flat and declining, and prices for their export goods deflating in price as well, these debt-extended countries cannot earn sufficient income from exports in order to pay the principal and interest on their debt. As a result, several countries in the worst shape may soon default on their debt payment to western banks, hedge funds, private equity firms, and so on. Debt defaults potentially mean the same western financial institutions that loaned the funds now experience financial crises in turn. In such a manner, financial instability events abroad are often transmitted to the domestic US economy through its banking system. It would not be the first time, moreover, that foreign bank crashes have spilled over the US and rest of the world economy and in the process significantly exacerbated a recession already underway.

Theoretically, countries experiencing severe sovereign debt crises could borrow from the International Monetary Fund. However, the IMF has nowhere near the funds to accommodate multiple large sovereign defaults that occur simultaneously. Nor is it likely that the US and Europe will increase the IMF’s funding to enable it to do so. Once it becomes clear the IMF cannot handle a crisis of such potential dimensions, the global capitalist economy will slip even further toward global depression.

The further deterioration now already occurring in economic relations between the US and China may also potentially impact the Great Recession in the US, and ensure its continued W-Shape recovery. Trump’s trade pact with China signed December 2019 has proven thus far a colossal failure. The president declared at the deal’s signing it would mean $150 billion in China purchases of US goods in 2020—especially farm products, oil & gas, and manufactured goods. At mid-year,

China has purchased only $5 billion of the agreed $40 billion in farm products and only $14 billion of $85 billion in US manufactured goods. Trump’s promised $150 billion was never agreed to by China, even before the Covid pandemic struck the US economy in 2020. China never agreed to a dollar value of purchases of US exports, but announced it would purchase based on conditions in 2020-21. Trump’s $150 billion was typical Trump misrepresentation of a deal never made. At best China would purchase perhaps $40 billion in agricultural goods—i.e. about the level of it purchases before Trump launched a trade war with it in March 2018. Failure to deliver his exaggerated public promise in 2020 Trump turned on on China and embraced further his anti-China hard line advisors on trade and other matters. The former ‘trade war’ with China will likely transform now, in the wake of Covid, into a broader economic war with China. Furthermore, the deterioration of relations with China, set in motion by the current recession and the collapse of global trade, shows signs of spilling over to other political and even military affairs.

Permanent Industry Transformations

The COVID health crisis is accelerating the transformation of entire industries and sectors of the economy, US and global. As noted above, household consumption patterns are already changing fundamentally and will continue as changed even after the health crisis passes. Entire industries will shrink as a consequence. Company consolidations and downsizing are inevitable in airlines, cruise lines, and even public land transport. So too will companies fail, consolidate and restructure in the hospitality, leisure and hotel industries, in mall-based retail establishments, inside entertainment (movies, casinos, etc.) to name but the obvious. Sports and public entertainment companies are struggling to redefine their business models and how they bring their ‘product’ to the public for consumption. Even education—public and private—is undergoing a radical shift. Not so obvious is similar fundamental change in oil & energy industries, and later as well in manufacturing as supply chains are slowly returned to the US economy.
Not only will these changes significantly (and often negatively) impact employment levels and wage incomes, but business practices as well. Already businesses are instituting new cost cutting practices under the pressure of the health crisis and shutdowns. These practices will become permanent. And since much of the practices and cost cutting will focus on workers’ pay and benefits, more of what economists call ‘long term structural unemployment’ will result—in addition to the current ‘cyclical unemployment’ occurring due to the current recession.

An historic consequence of the current Great Recession precipitated by the COVID-19 health crisis is the accelerating introduction underway of what some call the Artificial Intelligence revolution. AI is about cost-cutting. It’s about new data accumulation, data processing and statistical evaluation, to allow software machines to make decisions previously made by human beings. AI will eliminate millions of low level decision-making by workers in both services and manufacturing. A 2017 report by the business consulting firm, McKinsey, predicted no less than 30% of all workers’ occupations will be severely impacted by AI by the end of the present decade. 30% of jobs will either disappear or have their hours reduced significantly. That means less wage income and less consumption still.

The important linkage to the current Great Recession 2.0 is that the introduction of AI by businesses will now speed up. What McKinsey formerly predicted for the late 2020s decade will now take place by mid-decade. The economic consequences for the next generation of US workers, the late Millennials and the GenZers will be serious, to say the least. After decades of the permeation of low pay, low benefits ‘contingent’ part time and temp jobs since the 1990s, after the impact of the 2008-09 crash and aftermath on employment, after the acceleration of ‘gig’ jobs with the Uberization of the capitalist economy since 2010, and after the even more serious negative economic effects of the current Great Recession 2.0, the tens of millions of US workers entering the labor force today and in coming years will have to face the transformation of another 30% of all occupations. The future does not portend very well for the 70 million millennials and GenZers. US neoliberal economic policies and the Great Recession 2.0 is accelerating the long term structural unemployment crisis of both the US and the global capitalist economy.

Return of Fiscal Austerity

The US federal budget deficit under Trump averaged more than a trillion dollars annually during his first three years in office. The federal national debt at the end of 2019 was $22.8 trillion. As of July 2020 it has risen to $26.5 trillion—and rising. Earlier projections in March were that it would increase by $3.7 trillion in 2020. That has already been exceeded. So, too, will projections for 2021, or another $2.1 trillion. The deficit and debt will likely rise to more than $4 trillion in this fiscal year and another $3 trillion in 2021. That means the current national debt within 18 months will reach $30 trillion. And that’s not counting the debt level rise for state and local governments, already $3 trillion; nor the debt carried on the US central bank, the Federal Reserve, balance sheet which is scheduled to rise another $3 trillion at minimum.

The point of presenting these statistics is that the US elites, sooner or later, will introduce a major austerity program. It will likely come later in 2021. And it will make little difference whether the administration that time is headed by Democrats or Republicans. It will come and it will target social security, Medicare, Medicaid, Obamacare, education, housing, transport and other social programs.
A The first Great Recession provides a historical precedent. Obama’s recovery program in January 2009 provided for $787 billion in stimulus. But the joint Republican-Democrat austerity agreement introduced in August 2011 took back nearly twice that stimulus, or $1.5 trillion, in 2011-13. That austerity contributed significantly to the W-shape recovery from the 2008-09 economic crash and contraction—i.e. the first Great Recession. With the current deficit surge of $6 trillion to date, likely to increase to $9 to $10 trillion, the US economic elites will no doubt pursue a new austerity regime at some point within the next few years. That austerity will, like its predecessor, ensure at best a W-shape recovery typical of Great Recessions. At worst, it may prove the final event that pushes the US economy into another Great Depression.

Financial Instability

Those who deny that the US and global economy have already entered a second Great Recession offer the argument that the 2008-09 crash and recession was caused by the banking and financial crash of 2008-09, and therefore, since there has not yet been a financial crash, the economy at present is not in another Great Recession. But they are wrong.

Great Recessions are always associated with a financial crisis, but that crisis need not precede the deep contraction of the real, non-financial economy. The COVID-19 pandemic has played the role of a financial crash in driving the real economy into a contraction that is both quantitatively and qualitatively worse than a ‘normal’ recession. Furthermore, a subsequent banking system-financial crash is not impossible in the coming months, although not yet likely in 2020.
The preconditions for a financial crisis are in development. It won’t be precipitated by a residential mortgage crisis, as in 2007-08. But there are several potential candidates for precipitating a financial crash once again. Here are just a few:

• The commercial property sector in the US is in deep trouble. Commercial property includes malls, office buildings, hotels, resorts, factories, and multiple tenant apartment complexes. Many incurred deep debt obligations as they expanded after 2010 or just kept operating by accruing more high cost debt when they were unprofitable. Today they are unable to continue servicing (i.e. paying principal and interest) on their excessive debt load. Many have begun the process of default and chapter 11 bankruptcy reorganization. Banks and investors hold much of the commercial property debt that will never be repaid. Excess derivatives (credit default swaps) have been written on the debt. A debt crisis and wave of defaults and bankruptcies in 2020-21 in the commercial property sector could easily precipitate a subprime mortgage-like debt crisis as occurred in 2008-09. And derivatives obligations could transmit the crisis throughout the banking system—as it did in 2009. Regional and small community banks in the US are particularly vulnerable.

• The oil and gas fracking industry, where junk bond and leverage loan debt had already risen to unstable levels by the advent of the COVID crisis. The collapse of world oil and gas prices—which began before the COVID-19 impact and continues—will render drillers and others unable to generate the income with which to service their debt. Already more than 200 companies in this sector are in default and bankruptcy proceedings. Again, regional banks that financed much of the expansion of fracking in Texas, the Dakotas, and Pennsylvania will be impacted severely by the defaults. Their financial instability could easily spread to other sectors of banking and finance in the US.

• State and local governments, should Congress fail to appropriate sufficient bailout funding in its next round of fiscal spending in July 2020. State and local governments are capable of default and bankruptcy—unlike the Federal government, which is not. The US has a long history of state defaults associated with the onset of Great Depressions. This time around, state financial instability will quickly spill over to public pension funds, and from public to private pensions, and from there to the municipal bond markets with which state and local governments raise revenue by borrowing to fund deficits.

• Global sovereign debt markets, as previously noted. Defaults on massive debt accumulated since 2010 by many countries could result in serious contagion effects on the private banking systems of the advanced economies, including the US, Europe, and Japan. Should the IMF fail to contain a chain of sovereign debt crises that could follow in the wake of the current Great Recession, a chain reaction of defaults across emerging market economies in particular has the potential to precipitate a global financial crisis.

History shows that financial crises often originate from unsuspected corners of the economy. The above candidates are the ‘known unknowns’. There may also lurk in the bowels of the capitalist global financial system still more ‘unknown unknowns’—i.e. what are sometimes called ‘black swan’ events.

Political Instability

The US and other countries are on new ground in terms of potential political instability. The piecemeal curtailment of democratic and civil rights has been progressing at least since the mid- 1990s. In the 21st century it has been accelerating, both in the US and across the globe. Recent years have seen a growing public confrontation between contending wings of the capitalist elites and their political operatives. Institutions of even limited capitalist democracy are under attack and atrophying. And now political instability is growing as well at both the institutional and grass roots levels. One should not underestimate the potential for even more intense political confrontation among elites, or between segments of the US population itself, from having a negative impact on the current economic crisis and 2nd Great Recession. A Trump ‘October Surprise’ or a November 2020 constitutional crisis are no longer beyond the realm of the possible, but even likely.

The expectations of both households and business may serve as transmission mechanisms propagating political instability into more economic and financial instability. Political instability has the effect of freezing up business investment and therefore employment recovery. It has the further effect of causing households to hoard what income they have and raise the savings rate—at the expense of consumption. It also leads to government inaction on the policy necessary to provide stimulus for recovery.

On a global front, political instability may even assume a global dimension. History in general, and US history in particular, reveals that US presidents seek to divert public attention from domestic economic and social problems by provoking foreign wars. Targets for US attack, in the short term, are Iran and Venezuela—especially the latter, which is more susceptible to US military action. But tomorrow, in 2021 and after, it could well be Russia (Ukraine or Baltics US provocations), North Korea (a US attack on its nuclear facilities) or China (a US naval confrontation in the South China sea)—irrespective of the unlikely success of such ventures.

Like another financial-banking crash, a major political instability event—domestic or foreign—could easily send an already weak US economy struggling in the midst of a Great Recession into the abyss of the first Great Depression of the 21st century.

Dr. Jack Rasmus
July 17, 2020

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Listen to my last friday’s radio show, Alternative Visions, and my discussion whether the current tepid economic rebound due to reopening will result in a relapse and economic retreat before year’s end. Why none of this qualifies as ‘recovery’.




Dr. Rasmus explains 8 reasons why the US economic ‘rebound’ will not be a recovery. Why jobs are not recovering at rate announced by government, while mass layoffs of permanent jobs are beginning to occur amidst recalls due to economic reopening. Other reasons for W shape rebound and relapse and not robust recovery is that the 2nd surge in Covid will depress economic activity again, the lack of a sufficient fiscal stimulus in Congress as the first CARES ACT dissipates, growing business and consumer negative expectations, global trade collapse with 90% of world economies in recession, business cost cutting, wage cutting and layoffs of the recent shutdown becoming permanent, intensifying US political instability in coming months, prospects growing of rising business defaults, bankruptcies, and another financial crisis in 2021.

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The reopening of the US economy in June—and some states as early as May—has produced a modest economic ‘rebound’. But rebound is not to be confused with economic recovery.

The current rebound is the natural result of the US economy collapsing 40% between March and June 2020. In the first quarter, January-March 2020, the US economy contracted 5%, virtually all of that in March. While the final data for the 2nd quarter is yet to be announced, the US Federal Reserve Bank’s forecasts of US Gross Domestic Product (GDP) show a much greater collapse, ranging from -30.5% (NY Fed district) to -41.7% (Atlanta Fed district). No economy can continue to collapse at that steep a rate quarter after quarter.

Economies experiencing deep and rapid contractions—which is typical of both great recessions and economic depressions—inevitably experience periods of leveling off for a time, or even a slight bounce back—i.e. a rebound. But that’s not a recovery. ‘Recovery’ means a sustained, quarter to subsequent quarter economic growth that a continues more or less unabated until the lost economic ground is ‘recovered’. But a rebound is typically temporary, followed by subsequent economic relapses in the form of stagnant growth or even second or third dip recessions.

Look at the Great Recession 1.0 that began in December 2007. The decline began that month subsequently declined more rapidly in the first quarter 2008, but then bounced back slightly in the 2nd quarter 2008. It then took a deep dive in the second half of 2008 through the first half of 2009, contracting every quarter for an entire year. A short, shallow recovery followed into 2010. But the economy relapsed again in 2011, contracting once more for two quarters in 2011. Another small rebound followed in early 2012 and was followed by stagnation in the second half of 2012.

The reported GDP numbers after 2008 were even weaker, and the relapses more pronounced, before the US Commerce Dept. changed the way it defined US GDP and boosted the totals by $500 billion a year after 2013, retroactive to 2008 and before.

All Great Recessions with an initial deep economic contraction, are typically followed by brief shallow recoveries, cut short by subsequent double dips or quarters of no growth stagnation.

That was true of the Great Recession of 2008-09, which didn’t really end in June 2009, but bounced along the bottom economically for several more years. A similar trajectory will almost certainly follow today’s 2020 Great Recession 2.0 now concluding its Phase One initial deep collapse.

The Phase One deep collapse is now giving way to its Phase Two and what will prove a brief and quite modest ‘rebound’. But that’s not a recovery.

Further economic relapses are inevitable after ‘short, shallow rebounds’ that characterize all Great Recessions. That trajectory—i.e. short, shallow rebounds followed by relapses also brief and moderate can go on for years.
What it means is there will be no V-shape and true recovery in the US economy in the second half of 2020. What there will be is an extended ‘W-shape’ period, the next two years 2020-2022 at minimum. And it may continue for perhaps even longer.

The 1929-30 Great Recession: Anteroom to 1930s Depression

A similar scenario occurs prior to bona fide economic depressions, like that which occurred in the 1930s. The great depression began initially as a Great Recession. US policy makers failed to contain it and it slipped into the Great Depression of that decade as we know it. What precipitates Great Recessions collapsing into bona fide Depressions is the collapse of the financial and banking system.

The Great Depression of the 1930s did not begin with the stock market crash of October 1929, however. The real economy was already slipping into recession in manufacturing and construction sectors in 1929, well before the October 1929 stock market financial crash. The economy contracted in 1930 by -8.5% and continued to contract every year thereafter through mid-1933 as the US economy experienced a series of four banking crashes, one each year from 1930 through 1933. The banking crashes drove the real, non-financial economy ever deeper every year, in a ratchet like effect.

Rebound and growth followed 1934-36. However, that weakened significantly in late 1937 as a conservative Republican Congress and Supreme Court together began dismantling Roosevelt’s 1935-37 New Deal social spending fiscal stimulus programs. As a result, in 1938 the US economy fell back into depression once again. A partial reversing of the dismantling in 1939 produced a return to positive GDP growth that year. But it wasn’t really until 1941-42 that the economy really exited the Great Depression, as US GDP rose 17.7% in 1941 and then 18.9% in 1942. Recovery—not rebound—was clearly underway after m id-1940—i.e. the result of government spending on both social programs and defense that amounted to more than 40% of GDP those years. That was fiscal stimulus. That was recovery.

In other words, the lesson of the Great Depression of the 1930s is in order to end a depression, or stop a Great Recession from becoming a Depression, the government must step in and spend at a rate of 40% GDP.

Prior to the onset of the current 2020 Great Recession 2.0, the US government’s spending and share of US GDP was about 20%. It needs to double to 40% to engineer a true recovery from the current crisis. 5.5% is no stimulus in fact; just a partial ‘mitigation’ of the severe collapse that just occurred. That is, a temporary floor under the deep 30%-40% collapse that would have been even greater.

The 2008-09 Great Recession: The 5.5% Failed Stimulus

In January 2009 the incoming Obama administration proposed a fiscal stimulus recovery package amounting to roughly $787 billion and 5.5% of GDP.

Economists advocated double that. Even Democrat party leaders in the US House proposed another $120 billion in consumer tax cuts. But Obama’s economic advisers, mostly former bankers and pro-banker academics like Larry Summers, argued the US could not spend that much. Obama listened to Summers and reduced the amount to the $787 billion. It proved grossly insufficient. The real economy continued to lag and job losses continued to mount. Supplemental programs like ‘cash for clunkers’ and ‘first time homebuyers’ had to be added.
Even with these post-January program supplemental spending Obama’s fiscal stimulus proved insufficient to generate a robust recovery, as the historical record shows. The US recession under Obama ‘recovered’ at its weakest rate compared to all the prior ten US post-recession recoveries since 1947. The Obama recovery was only 60% of normal for recession recoveries.

The problem with the Obama 5.5% was not only the insufficient magnitude of the stimulus. Its composition was deficient as well. It called for almost $300 billion of the $787 billion in mostly business tax cuts, which were then hoarded by business and not invested to expand output, hire more workers, and generate thereby more income for consumption. Nearly $300 more was in the form of grants given to the states to spend. They too hoarded most of it and failed to rehire the unemployed as was intended. The remainder of the $787 billion was composed mostly of long term infrastructure investment and spending that had little initial effect on the economy’s recovery. As a result of the insufficient magnitude and poor composition of the Obama 2009 stimulus, the US economy fell into a ‘stop-go, W-shape economic recovery for the next six years. US jobs lost in 2008-09 were not recovered until as late as 2015, and the average wages paid for the new jobs was significantly less than wages paid for the jobs that were lost.

The point is: if 5.5% was insufficient to generate sustained recovery in 2009, today in 2020 the effective 5.5% fiscal spending produced by the CARES ACT in March 2020 will prove even less successful. The US economy’s economic collapse today is five times deeper than in 2008-09 and has occurred in one-fifth the time of the 2008-09 event. If a second more aggressive government spending program does not follow in the second half of 2020, then the current tepid economic ‘rebound’ underway due to the reopening of the US economy will certainly fail at generating a sustained recovery. Here’s why the CARES ACT—the main and only stimulus program to date—is only 5.5% and will fail to generate a sustained recovery as the economy reopens with a modest ‘rebound’.

The March 2020 CARES ACT: Failed Stimulus Deja Vu

As of mid-year 2020 the US government spending to date is summed up in the various provisions of the CARES ACT passed by Congress in March 2020, plus several smaller measures passed before and after it as supplements. Its actual spending as of late June 2020 amounts to only approximately a 5.5% contribution to US GDP.

The CARES ACT on paper called for $1.45 trillion in loans and grants to small, medium and large businesses. $500 billion is allocated as loans to large corporations. Another $600 billion to medium sized plus some other measures. And $350 billion in loans, convertible to grants, to small businesses called the Payroll Protection Program, or PPP.

Another $310 billion was added to the PPP small business loan program as banks quickly misdirected hundreds of billions of dollars to many of their ineligible bigger business prime customers which scooped up much of the original $350 billion for small business.

The three business programs combined thus allocated $1.76 trillion in loans and grants.

Another $500 billion was allocated to workers and US households in the form of supplemental income checks of $1200 per adult plus an extra $600 in federal unemployment benefits available through July 31, 2020.

A couple hundred billion dollars more went to hospitals and health care providers in emergency reimbursements before and after the March CARES ACT passage.

That brought the total March CARES ACT fiscal stimulus to roughly $2.3 trillion. However, not discussed much in the media is another $650 billion CARES ACT provided business and investor tax cuts. The tax cuts include a temporary suspension of business payments to the payroll tax; more generous net operating loss (NOL) corporate tax averaging that allows business to use current losses to get tax refunds on prior year taxes paid; faster depreciation write-offs ( de facto tax cut); and more generous business expense deductions. Less than 3% of the $650 billion tax cuts in the CARES ACT went to families earning less than $100,000 per year in annual income.

On paper, the roughly $2.3 trillion CARES ACT amounted to roughly 11% of GDP. But only half of that 11%–or just 5.5—has actually hit the US economy. This contrasts with Germany and other European and Asian countries that boosted fiscal spending stimulus by as much as 15%-20%.

Another 5.5% Stimulus Means Another Failed Sustained Recovery

The 5.5% to not enough to kick start the rebound into a sustained recovery. Much of the 5.5% is already spent to mitigate the 2nd quarter deep contraction and is no longer available as a stimulus in the upcoming 3rd quarter.
All the $1200 checks have been spent already and most of the $600 unemployment benefit boost has entered the economy. The latter expires on July 31. Furthermore, the majority of the $1.7 trillion allocated to businesses large and small has yet to get into the US economy as well.

Of the $660 billion in the small business PPP program, about $520 billion has been spent. Less than $100 billion of the $500 allocated to large businesses, like airlines and defense companies, has actually been ‘borrowed’ by big business. And as of mid-June 2020, none of the $600 billion for medium size businesses had been ‘taken up’ by those businesses. That program only became fully operational by the Federal Reserve in the last week of June, more than three months after its announcement.

Thus far little interest appears on the part of medium and large businesses in the more than $1 trillion loans allocated to them. And as far as the $650 billion in tax cuts is concerned, its effects can be delayed until December 31, 2020, if even then. Given the weak US economy and consumer demand, many businesses will take the tax cuts and hoard them.

In short, more than half the roughly $3 trillion total of government spending, loans, grants and tax cuts provided by the CARES ACT is yet to be committed to the US economy. The official 11% is really only half that at best.

This fact leads to the interesting question: Why have medium and large businesses not take up more of the $1.1 trillion business loans allocated to them?

The $3+ Trillion Uncommitted Business Cash Hoard

The answer is they haven’t because they are already bloated with cash and don’t need or want it. That cash hoard has resulted from several sources in recent months: Large corporations saw the writing on the wall with regard to the virus as early as January-February 2020. They quickly began loading up on cash by drawing down their generous loan credit lines with their banks. That produced a couple hundred billion dollars in cash by March. Then they issued record levels of new corporate bonds to raise still more cash. From March to end of May more than $1.3 trillion in new corporate investment grade bonds was raised by the Fortune 500 US businesses—i.e. more than in all 2019. A couple hundred billion dollars more was raised in junk grade corporate bonds. Still another cash source was raised by businesses suspending dividend payments and stock buybacks to shareholders. In 2019 they distributed $1.3 trillion in buybacks and dividend payouts ($3.4 trillion total under Trump’s first three years in office). So buybacks and dividends suspensions saved at least another $500 billion in cash.

Companies also began selling off and cashing in their minority stock interests in other companies. Furloughing workers to work from home also saved still more cash in reduced facilities, benefits and related costs for many corporations. Tech companies especially benefited from this.

Bloated with trillions of dollars of cash, large and medium sized corporations had little interest in borrowing from the CARES ACT, since the latter came with conditions like the provision that 70% of the loans be spent on keeping workers on their payrolls. They preferred to lay off their workers, and borrow from the credit markets, issue new bonds, and otherwise conserve cash.

A good example was Boeing Corporation. Congress allocated more than $50 billion to Boeing as part of the $500 billion loan program earmarked for large corporations. Instead of borrowing that, Boeing raised $25 billion issuing new bonds and announced layoffs of 16,000 of its workers! Less than $100 billion has been used to date by large corporations under the CARES ACT big corporations’ $500 billion loan allocation. And virtually nothing of the $600 billion to date allocated under the medium size business loan program called the ‘Main St.’ lending facility.

7 More Reasons Why ‘Rebound’ Won’t Mean Recovery

Here are some seven other reasons—apart from the US current insufficient fiscal stimulus—why the US economy will not experience a sustained ‘recovery’ in the next six months, and why instead the US will follow a W-Shape trajectory of weak un-sustained growth followed by economic relapses through 2020-21 (and perhaps even longer):

1.) 2nd Covid-19 Wave Economic Impact:

It is inevitable a number of states will reinstate shutdowns—in significant part if not totally—as the infection, hospitalization, and death rates rise over the summer due to premature reopening of the economy and a growing breakdown of social discipline in adhering to basic precautions like social distancing and mask wearing. The partial shutdowns will. To varying degrees, reduce consumer spending, business investment, and result in re-layoffs of workers. Second wave layoffs in services like leisure & hospitality, bars, restaurants, travel, public entertainment, and even education and health care services will emerge—all negatively impacting household consumption demand. It is estimated that at least half of the states, 40% of the reopened economy, will reinstate some degree of re-closures of business activity in coming weeks and months as a resurgence of Covid 19 impacts the US economy in the second half of 2020 and beyond.

The official US June employment report on July 3, 2020 showed 4.8 million jobs were reinstated. But no less than 3 million of that 4.8 million were recalls in leisure & hospitality, hotels, bars, restaurants, and retail industries. These are the same industries that will be affected most by states reinstituting shutdowns. They are also industries where businesses that have been able to reopen only partially thus far in most cases operate on very thin margins. They are likely to fail in Phase Two of the crisis now beginning, and many closing completely in the second half of 2020 as a result of operating only at half capacity.

The scope of the possible closures is revealed by the recent Yelp survey of 175,000 of its customer business base. During the 2nd quarter, Yelp’s survey found that in May-June only 30,000 of its 175,000 had reopened. More important, its survey showed that 40,000 of its 145,000 that hadn’t yet opened had already closed permanently.

The wave of permanent business closures in the second half of 2020—especially in the leisure & hospitality and retail industries—should not be underestimated. The permanent shutdowns will occur not only due to reduced consumer demand, but to a resurgence of Covid-19 and a second wave of layoffs.

2.) Deeply Entrenched Business & Consumer Negative Expectations

The US economy has been deeply wounded by the deep contraction of the past four months. Both businesses and consumers have negative expectations as to the direction of the economy in the short to intermediate run. Businesses don’t see the conditions for returning to expanding investment, or even returning to prior levels of production and output. With consumer demand clearly in retreat, business expectations of future sales and profits are dampened. Reducing the cost of investing by lowering business taxes or interest rates have little effect on generating more investment, when expectations of profitability—which is what really drives investment—are so low. This is the fundamental reason why business across the board is hoarding its accumulated cash. The same applies to consumers and households. They too are hoarding what cash they have available, spending mostly on necessities only. The evidence is the sharp rise in the household savings rate and bank deposit rates. As much cash is saved and deposited as a precaution that economic conditions may worsen, instead of actually spent. The result is only minimal increase in spending occurs, just as minimal investment. Until negative expectations are somehow reversed, both business investment and household consumption do not rise to levels that result in sustained recovery.

It will take a major event to again shift business and consumer negative expectations, like a vaccine for the virus or a major fiscal stimulus or a program of mass hiring of the unemployed by government. However, none of the above is on the immediate horizon. Therefore negative expectations will continue to dampen any sustained recovery and limit whatever insufficient government fiscal stimulus to generating a modest ‘rebound’ at best.

3.) Business Cost Cutting & Permanent Layoffs

The deep and rapid rate of contraction of the economy over the past four months, and the business expectation of weak recovery, has convinced many businesses to make many of the cost cutting moves of recent months permanent. An example is how some industries and businesses moved their workforces to work from home. It has saved them significant costs of operation—on facilities, maintenance, and some employee benefits. In recessions businesses always find new ways to cut costs that often result in more layoffs and lower wages. Another phenomenon is rehiring and recalling workers back to work temporarily laid off does not occur en masse and all at once. The typical business practice is to recall only part of their workforce and to recall workers more on a part time basis. Not least, the cost cutting and the part time recalls typically results in businesses leaving part of their furloughed work force behind, whose unemployment then becomes permanent.

This second wave of jobless is already beginning to emerge, as businesses downsize in employment after the initial shock to the economy that has already occurred. Airlines are announcing tens of thousands of layoffs. Several other industries are experiencing growing defaults on debt payments and bankruptcies that will result in mass layoffs as well. For example, the oil & energy sector which was a major source of new job creation during the fracking boom of the past five years. More than 200 defaults of companies are in progress. Layoffs are beginning, of a permanent nature not just temporary furloughs or layoffs.
Cost cutting and layoffs translate into less household income for consumption and therefore for generating a sustained recovery.

4.) Deeper Global Recession & Global Trade Crisis

The collapse of the US economy in the first half of 2020 has been accompanied by a synchronized contraction of the global economy. Global economic contraction means US production for export does not recover much in the short run. Offshore demand for US goods & services remains weak. That in turn dampens domestic US investment, employment, and therefore business-consumer spending. Although the US economy is relatively less dependent on exports to stimulate economic growth, exports are not an insignificant contributing factor to US growth and recovery.

More than 90% of the world economy has also experienced deep recession in the first half of 2020. That compares with the first Great Recession of 2008-09 when a fewer 60% of countries were in recession along with the US. Foreign demand for US exports is thus even weaker this time around. Post 2009 China and emerging market economies boomed after 2010 and put a partial floor under US economic contraction by stimulating demand for US product exports; that China-Emerging Market economies stimulus effect on the US economy no longer exists in 2020.

5.) Intensifying US Political Instability

One should not underestimate the potential growing political instability in the USA in the second half of 2020. This instability will occur on two ‘fronts’. One is at the level of political institutions. It is likely the upcoming national elections on November 3, 2020 will be challenged and not accepted by either Trump or the Democratic Party nominee. The growing social instability in the USA and Covid 19 effects on voter turnout, combined with the already widespread voter suppression in various states, makes for ripe conditions for post-electoral crisis should the election be narrowly decided by voters in November. Evidence is growing, moreover, that Trump is prepared to declare voting by mail as fraud and use that as an excuse to throw the election into the Supreme Court—as occurred in the US in 2000. Today Trump, unlike George W. Bush in 2000, enjoys an even firmer majority in the US Supreme Court.

The instability at the level of political institutions in the USA today is accompanied by what appears as growing grass roots civilian conflicts. Street level confrontations between Trump supporters and rising popular movements and demonstrations are not beyond the realm of possibility, perhaps even likelihood.

The political instability has significant potential to negatively impact both consumer and business expectations and therefore dampen both business investment and household consumption even further in addition to causes already noted.

6.) Wild Card #1: Financial Crisis 2021

Intermediate term, in 2021 likely more than in 2020, is the wild card of a financial system crisis emerging that would exacerbate the real economy’s faltering recovery still further. This channel by which a financial crisis might emerge is a growing wave of corporate and state & local government defaults. Massive excess debt has built up over the past decade in business sectors in the US. More than $10 trillion in corporate bond debt exists at present. At least $5 trillion in corporate junk bonds and virtual junk like BBB investment grade. Still more for corporate ‘junk’ leveraged loans. A protracted period of recession and weak recovery will generate a major potential for corporate defaults and bankruptcies. If the magnitude and rate of defaults is too great, or comes too fast, the banking system could very well experience a major credit crash once again.

Industries highly unstable with high cost unaffordable debt, and with insufficient revenues with which to service that debt, include: oil fracking and coal, big box retail, smaller regional airlines, rental car and other travel related companies, hotels and resorts, malls, commercial property in general, and hundreds of thousands of small restaurants and regional restaurant chains. Defaults have already begun rising rapidly in many. Household debt and state and local government debt finds itself in much of a similar situation—highly leveraged with debt amidst collapsing incomes to service the debt as unemployment and wage incomes continue to decline and as tax revenues remain depressed long term due to the weak economic recovery.

The US central bank, the Federal Reserve, is in the midst of an historic experiment to pre-bail out non-bank corporations to forestall the defaults and to flood, at the same time, the US banking system with massive excess liquidity with which to manage the defaults should they come excessively and too rapidly. It remains to be seen whether the Fed’s massive liquidity injections thus far ($3 trillion), and promised (unlimited), will prove sufficient to manage the defaults. If not, the US banking system will freeze up as financial institutions begin to crash as well with the transfer of defaulted corporate debt on to their own bank balance sheets.

In 2008-09 it was the banking system that collapsed first and in turn precipitated a deeper and faster contraction of the real economy in the US. Today it is quite possible the reverse causation may occur in the Great Recession of 2020. But it matters not in a Great Recession which precipitates which first—i.e. the banking system the real economy or vice-versa. The key point is that both cycles—financial and real—feed back on the other in a Great Recession and amplify the downturn in both.

7.) Wild Card #2: Artificial Intelligence Faster Rollout

Another wild card that may emerge with fuller force longer term is the penetration of Artificial Intelligence in business operations. McKinsey Consultants estimated that by 2025 AI would accelerate in its penetration of business practices. By the latter half of the 2020s decade it would have deep and widespread impact on employment and wages, as AI led to deep cost cutting by business. As much as 30% of occupations would be seriously impacted. The essence of AI is to eliminate simple decision making jobs, in services as well as manufacturing.

But it is highly possible that AI will now penetrate even faster, accelerated by business cost cutting and productivity enhancing drives, as a consequence of the current deep economic crisis. The deeper and more protracted the current recession, the more likely business will engage in multiple ways to reduce costs as a means to weather the crisis. AI offers businesses a prime opportunity to do just that. But AI also means a significant reduction in net jobs, especially simple low paid service and retail work. And with the net jobs and wage loss come reduced consumer household demand, consumption, and therefore sustainable economic recovery.

The Case for 40% Government Share of GDP

As previously noted, recoveries from great recessions and depressions require at least a 40% US government spending share of total GDP. Obama’s raised the US government share of GDP to barely 25%, not 40%. The economy accordingly struggled after 2009.

The current 2nd Great Recession 2020, the first phase of which has just concluded in June, is following the same rough trajectory and scenario as the 2008-09. There has been only token fiscal stimulus to the economy thus far from the CARES ACT. Indeed, Congress never considered, at least in the House of Representatives, the CARES ACT was a stimulus bill. It was called a ‘mitigation’ bill, designed to put a partial floor under the collapse of the economy going on at the time in the 2nd quarter 2020. A true stimulus bill was to follow. That’s the HEROES ACT now blocked in Congress by Republican Senate and Trump. What the latter want is to end the unemployment benefits and provide no further income supplement payments. They want to exchange further unemployment benefits for direct wage subsidies to businesses. They want even more tax cuts for business—permanent payroll tax cuts, more capital gains tax cuts, and more business expense deductions. And they are reluctant to provide funding support for state and local governments with accelerating deficits as a result of tax revenue collapse. Should support for state and local governments not occur soon, it is likely mass layoffs will emerge in states and local governments soon.
However, it does not appear so far that anything resembling a real stimulus will get passed with the HEROES Act. The unemployment benefits extension will likely be eliminated. More business tax cuts, should they be added to the $650 billion provided by the CARES ACT, will be hoarded in large part. As will corporate income that would have been otherwise used to pay wages, as the government pays the wages of their workers instead.

An insufficient fiscal stimulus from an eventual HEROES Act, should it occur, will ensure the current tepid ‘rebound’ of the US economy will fail to evolve into a sustained recovery of the US economy. The seven other, additional factors noted above will further prevent a sustained recovery—and indeed may precipitate a subsequent further serious economic contraction. The summer of 2020 is thus a critical juncture period for the US economy.

The US is currently experiencing what might be called a ‘triple crisis’. A health crisis that shows little sign of abating. A deep economic crisis that is still in its early phases. And a ripening political crisis. Never before in its history have three such major events converged. The one of the three that is potentially most manageable is the economic. Health crisis depends heavily on the development of a vaccine. Not much can be done to prevent a deepening political crisis. It will run its course, whatever that may be. But a government fiscal stimulus equivalent to about 40% of US GDP would very likely stabilize the economy and set it on a path to sustained recovery. However, it is highly unlikely that in the current political climate of instability, deep splits within the US political elites, growing grass roots social confrontations, and failure to mount an effective strategy to address the Covid-19 health crisis that the capitalists and their political representatives will be capable of introducing the necessary 40% war time economic stimulus.

Dr. Jack Rasmus
July 6, 2020
Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He hosts the weekly radio show, Alternative Visions, blogs at jackrasmus.com. His twitter handle is @drjackrasmus and his website: http://kyklosproductions.com.

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A second wave, or a second surge, in the Coronavirus is underway. Will it translate into a 2nd wave impact on the US economy–i.e. a relapse after a brief and modest rebound as the economy reopens? The topic is discussed below in my Alternative Visions show. (A written print analysis of the same is in progress. Posted soon).




Dr. Rasmus reviews the facts re. surging 2nd wave of virus infections and hospitalizations in the USA and discusses whether it will precipitate a further weakening of the US economy in the second half of 2020 as well. As World Bank chief economist, Carnmen Reinhart, has recently warned: it is important to distinguish between a ‘Rebound’ and a ‘Recovery’. Rasmus explains the reopening of the US economy the past 6 weeks has produced what looks like a ‘rebound’ for historic depths of contraction during the 1st wave of the virus, February-April, but that it is not a recovery. 39m still unemployed by moderate estimates, work hours down 15%, personal incomes up but being significantly unspent, the CARES Act stimulus either already spent by households or loans being hoarded by big corps. amount to no added real stimulus. Fed forecasts for US GDP for 2nd quarter at -30.5% to -41.9% mean a very deep hole for the US economy to try to crawl out of. Rasmus reviews the current late June state of the US economy: consumption, business investment, trade, and government spending that shows a slowing of the deep contraction but a continued contraction nonetheless. Conclusion: despite reopening the economy and a 5.5% GDP stimulus in March the US is not poised for an accelerating ‘recovery’ but a modest ‘rebound’ at best. And a 2nd wave increases probability of another economic relapse in late 2020 or early 2021 if no real fiscal stimulus comes soon.

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