Archive for the ‘Uncategorized’ Category

With all the hype emerging in mainstream media and among politicians about the US economy about to boom, Dr. Rasmus discusses a contrarian view based on the various warning signs in the US economy now emerging. Despite the official talk of GDP recovery underway this quarter there’s: the Fed’s warning this week of rising ‘insolvency risk’ and business bankruptcies coming; new claims for jobless benefits rising again and consistently more than 1 million/week since October; the recent retail sales bump as really a warning not good news; financial market bubbles churning as investors chase ever more risky yield in cryptocurrencies and worthless stocks; China’s introduction of its own digital currency; and growing indications of Biden’s ‘bipartisan back-tracking’.

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Recently I was asked to explain by Michael Albert and ‘Revolution Z’ media how Wall St. stock markets work, what’s up with the recent Gamestop bubble, what’s financial speculation, what causes financial instability and crises–and how they are all related to, or unrelated to, the real economy. Presented in simple terms, the interview clarifies for laypersons how the current capitalist financial system functions to make investors ever richer, while the rest of the real economy experiences periodic great recessions, wages stagnate and fall, and the quality and quantity of jobs deteriorates.



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Listen to my February 12, 2021 Alternative Visions radio show for my debunking of Larry Summers, Oliver Blanchard, and other economists’ phony arguments why spending $1.9 trillion in fiscal stimulus (Biden’s proposal) will lead to runaway inflation, unaffordable deficits, and other nonsense.




What are the arguments of Larry Summers, Oliver Blanchard, and other nonconomists rallying behind Republicans and big capitalists’ trying to reduce Biden’s $1.9T economic stimulus proposals? How bad is the US recovery in January 2021? Rasmus debunks each of the main points being made by Summers & friends and the rosy picture being painted for first quarter 2021. Dr. Rasmus then comments on the current impeachment trial in the US Senate and why it will resolve nothing of the threat to what remains of US democracy in the next two years by the Trump forces and Trump himself.

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Watch my January 18, 2021 half hour Video Presentation to the Green Party of Alameda County, California on the US economic crises over the past year, and future possible scenarios in 2021. Why the current economic crisis is best understood as the Great Recession 2.0–and a more serious repeat of the 2008-15 prior Great Recession 1.0. Why the economic crisis is not a V-Shape, or strictly Covid driven crisis, but rather a long duration W-shape recovery marked by a partial recovery of last spring’s deep crash (March-May), followed by short and shallow rebound (July-September) and periodic relapses in turn (November-February 2021). The current situation is best understood as well as a ‘Triple Crisis’–covid/health crisis, economic insufficient stimulus, and political crisis–determining the trajectory of today’s Great Recession 2.0.

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Listen to my Alternative Visions radio show of Friday, February 5, 2021 for my discussion of the latest Jobs Report, status of Biden’s $1.9T proposed stimulus, and financial asset bubbles like Gamestop and US stock mkts.




Dr. Rasmus reviews the three main developments of the past week: today’s jobs report showing economy not creating sufficient jobs, the Biden fiscal aid stimulus bill stalled in Congress, and financial asset bubbles continuing to grow, including the financial speculators’ internecine war over Gamestop and other assets. What’s in the Labor Dept. jobs report that shows job situation even worse than the headline of 49,000 jobs created in January? What’s behind the Biden-Dems effort to push for the $1.9t stimulus ‘American Rescue Plan’ and why is unconomist, Larry Summers, again trying to get the Dems to spend less (as he did in 2009)? Finally, why are bubbles in stocks once again growing and analysts predicting a 15% market correction coming?

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Dr. Jack Rasmus
Copyright 2021

This past week a video game company in trouble, Gamestop, became the center of media attention. Day traders had driven up the company’s stock price by thousands of percent in just one day. The mainstream media narrative was the ‘small guy’ investor challenged the big boys of finance who had bet Gamestop stock price would contract, not rise sharply. The little investor, so the story goes, initially won big but Gamestop’s stock price escalation was stopped in its tracks by coordinated forces of Wall St., as trading was abruptly halted later in the day in the midst of the run-up. But that narrative, that media spin, has it wrong. The real meaning of what has happened is quite different.

The Facts

Earlier in the week stock day traders gathered on the platform called Reddit in what’s called a ‘crowdsourcing’ event. They communicated among themselves and as a group began betting up the stock price of Gamestop. Similar moves were made against the movie theater chain, AMC, also in big financial trouble, with little revenue coming in but loaded up with mountains of junk debt. A couple other companies in similar condition were targeted by the crowdsourcing day traders as well. Stock prices of these companies—all losers or about to be losers—were in a matter of hours driven to record heights in some cases—as if these companies were raking in profits like a Tesla or Google. But there were no fundamental reasons for the price acceleration; in fact just the opposite. Betting so, hedge funds and other financial market speculators were short selling their stock, betting their price would fall; and by ‘short selling’ they were actually manipulating the stock to force a price decline.

Short selling has a time limit on the bet. If the stock price doesn’t fall by a certain time, then all the money ‘bet’ by the short selling hedge fund is lost. As Gamestop’s price kept rising, some of them found themselves short of ‘liquidity’ (money) to cover their short sale bets. They had to sell other assets to pay for them. Or they have had to borrow money from other speculators and lenders (and pay interest) to cover their failed bets.

This had never happened before! That’s not how the system is supposed to run, the hedgies cried! The day traders weren’t playing by the rules of the game, they shouted! But of course they were. It was the hedge funds very own rules. It was all quite capitalist legal.

It was kind of like a poker hand at a Casino. If you bet your opponent isn’t holding a winning hand, you can raise the stakes and hope he drops out. You win the pot. But if some other player puts money on the table and raises you back, i.e. in this case raising the price of the stock like the day traders did with Gamestop, then they in effect call the hedge funds bluff; the hedge funds lose! The hedgies didn’t like that, of course. They are used to short selling without interference and then taking home the entire pot. But this time they didn’t. The day traders were winning the bet—at least the first hand played for the hedge funds got the Casino manager to change the house rules at the last minute to minimize their losses by halting further trading.

So the hedge funds, the big finance capitalist price speculators—as opposed to the crowdsourcing small day trader speculators—immediately changed the rules of the game, i.e. their rules, in order to teach the upstarts a lesson.

Robin Hood of Capitalist Finance

The small speculator capitalists used a trading system called Robin Hood in order to place their disruptive bets to drive up Gamestop’s stock price. What’s Robin Hood? It’s a finance trading competitor to the Schwabs, Interactive Brokers, and other low cost stock trading platforms. In recent years there’s been a ‘race to the bottom’ in charges for stock trades across the trading industry. Who can charge the least per trade can steal trading market share from the others. Robin Hood broke into the sector by introducing ‘no fee’ trades. It appealed to the ‘day trader’ by peddling the message that Robin Hood was about enabling the small trader to compete with the big boys. Robin Hood promised to enable the small speculator day trader to make more money at the expense of the big boys like the hedgies.

Except Robin Hood kept it a secret from its day trader clientele that it was funded in large part by the same big hedge funds. In fact, one of its biggest, Citadel Securities, which reportedly had a $2.7B stake in Robin Hood.

So Robin Hood halted the day traders’ speculation in Gamestop…and almost certainly at the behest of Citadel and other Wall St. finance capitalists. By stopping the day traders driving up the price of Gamestop stock, it saved the hedge funds and other short sellers billions of dollars of potential additional losses. They next day, January 28, Gamestop and other targets’ stock prices began to retreat once again. While Robin Hood has since indicated day trading of Gamestop could resume, it would have certain limits on trading and Robin Hood made it clear it would halt trading again if necessary.

The CEO of Robin Hood was interviewed on CNN shortly after these events by host, Chris Cuomo, who asked outright: “How do you make sure Robin Hood isn’t rigging it for the Sheriff of Nottingham?”—the Sheriff of course being Citadel, other hedge funds, and other short selling institutional speculators. Robin Hood’s CEO hemmed and hawed during the interview and hid behind the claim that it wasn’t Citadel or other that made him halt the buying of Gamestop stock and its price escalation. No, Robin Hood was just following regulatory requirements by the SEC and other government regulatory bodies, its CEO argued.

Left unanswered, however, was why did Robin Hood stop the buying of Gamestop stock when the SEC and other real regulatory bodies did not intervene themselves to stop the trading in the stock? When asked what regulatory agency asked Robin Hood to do so, the CEO had no answer to Cuomo. And why did Robin Hood halt only the buying of the stock that was driving up the price, but not the selling of the stock? Why did Robin Hood act as regulator, when the regulators saw no need to intervene? After all, the buying of Gamestop stock was no less legal than the short selling of Gamestop stock, according to capitalist regulatory rules. Government regulators didn’t tell Robin Hood it had to shut down Gamestop trades. A smoking gun anyone?

A Finance Speculator Food Fight

What happened with Gamestop, Robin Hood, Citadel and who knows what other big boys behind the scene, is best understood as a feud between two wings of Finance Capital. This isn’t about the small mom and pop day trader David vs. the Hedge Fund Goliath! It isn’t about Goliath telling David to put down his sling because it’s not allowed to fight that way.

Both the hedge funds and the day traders are financial asset market speculators. What’s a speculator? It’s someone who ‘invests’ (aka bets) that the price of some stock or bond or derivative or currency will rise (or fall). The speculator then bets on the rise or fall by buying or short selling the stock. The objective is to then ‘flip’ the stock purchased in a relatively short time and thereby make a quick capital gain. It isn’t investing in a normal sense. It’s just the mere buying or selling of a piece of paper (or now mere electronic entry) claiming temporary ownership of the paper. An actual investment is buying and holding a stock longer term in expectation of the company realizing future profits that will eventually drive up its stock value—in a company that actually makes things or provides an actual service, that requires hiring workers who in turn earn wages or revenue that would benefit the real economy.

In contrast, financial speculators are interested only in boosting demand for a stock in order to artificially drive up its price, then to flip it, and realize a financial profit—i.e. a capital gain. Speculative investing is about making a purchase and then a quick sale to realize a capital gain. That may also take the form of a short sale—i.e. a contract to buy a stock after its price had fallen and sell it at its higher price at the time of the contract. In both cases, its about selling after a price appreciation.

Make no mistake: the day traders driving up the price of Gamestop stock price weren’t doing it for the pleasure of tweaking the nose of short selling hedge funds. They were doing it to accelerate the stock price in order to later quickly sell it—just as the hedge funds were ‘short’ selling it for an expected profit as well. Only the method of the selling is different.

So both sides were planning on ‘selling’ Gamestop stock—just in different ways. The day traders by driving up the price by buying it first; the hedgies by reserving the right to sell the stock at yesterday’s price, after they ‘buy’ it when the price collapses tomorrow.

In other words, they’re both financial stock speculators. They’re both committing money capital that could—and should—be invested in the real economy not in paper claims of temporary ownership. Real investment is about longer term money capital commitment in order to make real things or services that required hiring and paying wages.

Both forms of stock price speculators are thus vultures preying on the real economy and undermining its recovery! They divert much needed money capital from the real economy into the financial sector that produces no actual economic growth, no jobs, no wage incomes, no consumption. The day traders aren’t the ‘poor little guy’ being exploited by big Wall St. hedge funds. They’re part of the problem.

Day Trading Is Also Casino Capitalism

Crowdsourcing day trading stock speculation is just the latest form of Casino capitalism, clashing with traditional financial speculators dominated by hedge funds, private equity companies, investment banks, and the other forms of shadow bank institutions that have risen in recent decades to prominence and power in 21st century capitalism. The newcomers are just fighting for a piece of the finance asset speculation pie, previously eaten whole by the hedge funds and the other shadow banks and professional investors.

It’s therefore absolute nonsense to make the latest specie of financial speculators—the crowdsourcing day traders—appear as if they are the ‘little guy’ being crushed by big guy Wall St. players. This isn’t about small financial speculator good, large financial speculator bad. This is a family food fight between sectors of capitalist finance.

The real question is what has given rise to the family food fight? What has enabled it in the first place? And how does it reflect a deeper social crisis in the country?

Technology the Great System Destabilizer

Technology in general, and social media in particular, has contributed significantly to the growing political instability in America. It has enabled conspiracy theories and lies to displace debate over facts. Without technology and social media there would have been no Trump, Trumpism, Breitbart, Parler, Proud Boys-Oath Takers, political institutional collapse, and now accelerating decline of Democracy in America. Technology may not be the fundamental cause of the above, but it certainly has been a major enabler of the deepening of the more fundamental causes.

Think of Reddit, the day trader’s WallStBets app, Robin Hood, etc. as the financial markets analog to the Breitbarts, Parlers, etc. in the sphere of political markets! Technology is disrupting 21st century capitalism in myriad ways. The Moloch has begun to devour itself!

Technology has enabled the day trader speculator gang to challenge the hedge funds and other shadow banks’ ability to manipulate the capitalist speculator show as they will. It has enabled the ‘small’ investor to aggregate his bets into a big enough play to compete with the traditional finance capitalists; it has enabled the ‘small’ investor to inter-communicate and coordinate those bets; and it has enable the concentration of financial bets to move a stock or even perhaps a market—contrary to the bets of the hedgies and other traditional speculators. And that’s what has really pissed off the latter.

So the old speculators quickly struck back! And their political allies will now hold meetings and deliver yet another slap on the wrist of the newcomers. Congress has already called committee hearings to figure out how to deal with it should it happen again.

The Real Origins of the Conflict

The ‘small guy’ crowdsourcing financial speculators aren’t really so ‘small’. Virtually all the stock trading by day traders is done by players who are easily within the wealthiest 5% of households in the US, and probably even fewer. So where have they gotten their money capital to make such bets sufficient to challenge the established rules of the game? The same place that the hedge funds and others ultimately get their money capital.

Since at least the past quarter century the central bank of the US, the Federal Reserve, has pumped tens of trillions of dollars into the banking system. The big commercial banks affiliated with the Fed—i.e. Chases, Wells, Citi, Bank of America—in turn have loaned the tens of trillions of dollars to the shadow banks—i.e. investment banks, private equity, VCs, hedge funds, etc. They in turn redirect much of it into financial asset markets—stocks, bonds, derivatives, etc. They reap record financial profits for themselves and their owners and members, who then redirect it back into the same markets as well.

At the same time, the US tax system has been turned on its head: More than $15 trillion in tax cuts has flowed to the investor class since 2001. That too gets largely redirected into financial markets.

Then there’s the corporate conduit itself. US corporations have redistributed more than a $ trillion dollars a year on average, every year, since 2010 to their shareholders in the form of stock buybacks and dividend payouts. Under Trump, the average for 2017-19 was $1.3 trillion a year. The deep tax cuts on capital gains since 2001 means the shareholders then get to keep more of the buybacks and dividend payouts, and that in turn means even more funneled into financial asset markets.

So the Fed’s monetary policy, the US government’s tax policy, and corporations’ buybacks-dividend practices have all converged the past two decades to keep the US and global stock markets ever rising. But the hedge funds haven’t been the only investors grown fat on the redirecting of massive money capital to investors. Nearly all within the top 5% of the income scale—and that means the day trader crowd—have benefited as well.

The crowdsourcing ‘small guy’ has had excess money capital with which to risk in speculative trades like Gamestop no less than the hedge funds—thanks to the Fed, government, and corporate America. Add the new technologies to the dry powder of excess speculative capital and the mix is explosive. It’s a witches brew of financial speculation!

The Realization Behind the Appearance

What appeals in this story of Gamestop is the appearance of ‘small guys’ getting screwed by the big guys even after they figure out how to ‘win one’. The Gamestop affair is just another confirmation for John Q. Public that the system is rigged. Gamestop is an example of how those with wealth and power are able to change the rules of the game in the middle of the game to ensure they will always come out on top! And they not only do it to ‘us’. They do it to each other. The big fish always eat the smaller, even the smaller of their own species.
But one should be less concerned about day traders getting burned, and more about the tens of millions of Americans families going hungry, jobless, being evicted from their rents, and dying in the hundreds of thousands due to a failed health care system and gross government mismanagement. The day trading stock speculators will survive. Many who have no idea what a stock trade is may not.

Dr. Jack Rasmus
January 28, 2021

Readers interested in a further explanation of finance capital in the 21st century, the role of shadow banks, financial asset speculation, and the rise of the new global finance capital elite, read Dr. Rasmus 2017 book, ‘Systemic Fragility in the Global Economy’, Clarity Press, 2017.

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Listen to my friday, January 22, 2021 Alternative Visions radio show for my discussion of Trump’s political legacies–a complement to the show two weeks ago discussing Trump’s Economic Legacies and last week’s show on Biden’s $1.9T stimulus proposal.




As a follow up addendum to a prior week’s show on ‘Trump’s Toxic Economic Legacies’, today’s Alternative Visions show discusses Trump’s Political Legacies.

At the top of the legacy list is the deep change in political consciousness among all sectors of US society that Trump’s regime—and in particular his last year in office—has generated. Political elites in Washington have been deeply shaken by the events leading up to and during January 6. They now realize the threat to limited US Democracy (and their own safety) is serious and not limited to the mob that attacked the Capitol that day. Key institutions like the police and even military are infected with right wing radical beliefs & intentions. Another fundamental shift in consciousness is among right wing radical movements. They now see January 6 as a ‘success’ to be repeated elsewhere later. Still another fundamental shift in consciousness is by John Q. Public, who now realizes US Democracy has not only always been fragile, but that the Electoral College is evident as basically anti-democratic, and that even the college can be thwarted and overturned by tactics. These changes in consciousness will be enduring.

Apart from this widespread consciousness shift, Trump’s second political legacy is the radical takeover of the Republican party under Trump and the forthcoming fight over who will run that party—traditional elites or Trump forces. A split in its structure is likely before 2024.

The third political legacy is the evident deep failure of government and institutions in addressing the US Triple Crisis: Covid, Economic, Political. It will be a challenge for Biden and traditional elites to restore the normal functioning of government soon.

Trump’s fourth political legacy is that US global hegemony and alliances are in a shambles. Former allies will never return to status quo ante pre-Trump again and will cautiously pursue independent relations with China and other countries.

Finally, the fifth political legacy, is Trump’s legitimization and organizing of the radical right forces in America, in and out of Government. That genie will not soon return to its bottle.

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This past Thursday, January 14, 2021 Biden announced his ‘American Rescue Plan’ (ARP), a list of programs and proposals purported to generate a robust economic recovery in 2021, just as the US economy continues to deteriorate as a growing list of recent economic data now indicate.

US Economy Faltering Fast

New filings for unemployment benefits have been rising rapidly. From a ‘low’ of about 1 million/week in December last week’s initial claims for benefits topped 1.4 million—when both benefit programs, State administered and the Federal PUA, are counted . Another red flag indicator is consumer spending (70% of the US economy) and retail sales, its largest component. The latter fell -1.4%% in November and another -0.7% in December, according to just released US Commerce Dept. data. These are typical months during which they rise the fastest. Another indicator of consumer spending in growing trouble, credit card spending fell an even larger -2.7% in December, according to Chase Bank’s database of 30 million credit and debit card holders. Still another red flag is trade. The US trade deficit based on recent months is now running $85 billion a month and close to $1 trillion a year. Trade deficits mean US exports, and thus US production for exports, is trailing imports to the US badly—and thus contributing to US GDP contraction in 2021 still further.

The severe weakening in the private sector of the US economy now underway can only be offset by increased government spending and stimulus. The much vaunted recovery of manufacturing activity represents only 11% of the US economy and, furthermore, has already increased most of its potential growth. It cannot continue at past rates or carry the general recovery from here. Only massive government spending at this point can do that.

The $900 Billion December 2020 Non-Stimulus

As the economy has weakened in the latter months of 2020, the US government injected a paltry stimulus in last December’s $900B (actually $866B per the Congressional Budget Office). But that will have minimal stimulus effect the current sagging real US economy. Here’s why:

Last December’s $900/$866B billion emergency stimulus passed just after Christmas just continues the level of unemployment benefits of $300 per week. That’s not a net new stimulus. The economy was already slowing fast in November-December despite that prior $300 level of benefits. Discontinuing the $300 in 2021 would have made the economy worse but continuing it does not make it a further net stimulus. Moreover, that $300 extension in benefits is good for only 11 weeks. It will run out by mid-March 2021.

Then there’s the $600 checks part of the December $866B/$900B. That’s a net stimulus but a minimal one at best. It injects only $166 billion into the real economy which is miniscule relative to the more than $20 trillion size US economy. Not even 0.1% of the $20 trillion US GDP. And even that assumes the entire $166 billion will actually be spent and not hoarded for future emergencies or used to pay down debt.

The $284 billion for direct small business grants is the largest part of the $900/$866 billion. It will have some net stimulus effect but won’t start hitting the economy for weeks and maybe months. It must first be applied for, then distributed, and then actually spent. And we all saw how that process dragged on with the Cares Act small business PPP program last March 2020—and how larger businesses scammed off a good deal of it and then sat on the scammed dollars.
In short, as an economic stimulus funding of the sagging US economy, the $900/$866 billion is a DOA effort to stimulate the economy, this first quarter 2021 in particular. It might keep the slowdown now underway from being even worse than otherwise a little. In that sense it’s a ‘mitigation’ package, but it is not a stimulus.

Biden’s $1.9 Trillion ‘American Rescue Plan’ Stimulus

Overlaid on the futile December mitigation package now is Biden’s $1.9 Trillion stimulus proposals announced this past week. But that’s still just a proposal—not yet an actual stimulus spending Act passed by Congress. Moreover, for it to have any appreciable effect stimulating the economy, there are three reasons why the $1.9 trillion will almost certainly end up much less.

First, the problem remains how much of the $1.9T will get cut as Republicans, and corporate Democrats, in Congress as they attack it. Already political forces are organizing to slash billions from the $1.9 trillion, including Democrats. A second reason why Biden’s proposals will not amount to $1.9T new actual stimulus to the economy is that a large part of it just continues prior spending levels. And that spending level that hasn’t been able to prevent the current US economy’s slowdown. Third, there’s the question of how soon the stimulus will actually be spent and thus actually get into the US economy. Certain programs and their spending will be delayed until well after the current January-March critical period.

So let’s describe in detail what’s in Biden’s ‘American Rescue Plan’ (ARP) and consider those programs that are likely candidates for cutting by Republican and corporate Democrats in Congress; that constitute just continuation of prior spending; and that will likely experience significant delay before the spending actually hits the economy.

Larry Summers: Corporate Shill Takes the Lead

Forces in and out of government and within both parties are coalescing to roll back the $1.9T Biden ARP proposals. Once again in the lead for corporate Democrats, is former adviser to Barack Obama in 2009, Larry Summers—now also advisor to Biden. Summers is appearing everywhere on corporate and mainstream media outlets declaring that the $1.9T is too much. He’s especially attacking the $2000 checks for families earning less than $75K per year in income, saying it’s too much. Summer’s message is even Biden’s $1400 in checks will expand government deficits and will overheat the economy causing inflation.

But there’s been no inflation for the past two decades despite adding $15 trillion to deficits and the national debt. The claim that deficits cause inflation in real goods and services is empirical nonsense, not because of some worn out neoliberal economic theory but because the facts simply don’t support it. But that old fake economic bogeyman of ‘excess spending leads to deficits that cause inflation’ is being peddled once again by Summers, on behalf of his corporate Democrat buddies, and of course most of the Republicans. They’ll seek to cut at least $500 billion from the $1.9 trillion.

For Summers this isn’t the first time he’s given fake and dangerous advice to presidents in time of economic crisis. It was Larry Summers who, back in early 2009, as key advisor to Barack Obama on how much to spend on Obama’s January 2009 economic recovery plan at the time, convinced Obama to reduce his 2009 stimulus by $120 billion that the US House of Representatives was prepared to spend. As a result the US recovery lagged badly in 2009-10. Congress had to make up the loss in spending by passing emergency measures like ‘First Time Homebuyers’ and ‘Cash for Clunkers (autos)’ subsidies for households. But by then it was too late. During Obama’s recovery package—amounting to way too little too late as now acknowledged by most economists—it took more than six years to recover jobs lost in 2008-09. And then those recovered were at pay levels much less than those that were lost. Meanwhile as well, 14 million of the 48 million mortgages were foreclosed. And tens of millions more were added to the list of those workers without health insurance between 2009-2015.

The Biden proposals are numerous and detailed. But if readers think they understand it by reading the Washington Post, New York Times, or other mainstream media summaries of it they are wrong. What that media has provided thus far is just bits and pieces of information, packaged up with very little analysis as to how much of the spending will actually get into the economy, how soon might it get there, and whether the $1.9 trillion will yet be gutted and reduced—as the Biden ARP ‘wish list’ hits the Republican buzz saw in Congress.
What follows is a breakdown of the spending elements in Biden’s $1.9T ARP proposals, as well as where and how it will likely be attacked and rolled back by Senate Republicans, Corporate Democrats, and Business Interest lobbying friends of Larry Summers.

Part 1: $400 Billion Covid Relief, School Reopening, & Emergency Paid Leave
There’s 4 Categories of spending in Biden’s proposed $1.9 trillion ARP. The first is $400 billion for Covid measures, Vaccine distribution, and for reopening the schools. In this group, corporate forces and their political allies will likely attack spending $170 billion earmarked to reopen schools, as well as the roughly $70 billion more to provide for 14 weeks paid emergency leave for workers who have to leave their jobs due to schools or child care center closings, to care for family members sick or to quarantine themselves. The $70B emergency leave measure also extends such paid leave for the first time to the 2 million federal employees and to reimburse state and local governments for the cost of the leave. The paid leave maxes out at $1,400/week and for workers earning $73K per year in annual income. In other words, it covers roughly 75% of all US workers.

Opponents like Summers and Senate Republicans will argue the $170 billion for schools is too much and should be reduced. It’s really money not needed for schools’ reopening. It’s really money Democrats want to push to local government—a source for which Republicans and Mitch McConnell have vowed not to allow funds since last June 2020. Anything appearing to help fund state and local governments will be opposed in their push back, and there’s a lot of money for local governments in the $1.9T in various forms of funding.

Even though the $70B for emergency leave will be paid directly to employers to offset the costs of the paid leave, it will still be attacked by conservatives and corporate Democrats, like Senator Mnuchin, in West Virginia and other corporate interests in Congress. Apart from its being extended to federal and state-local government workers, they’ll oppose it as well because it expands paid leave well beyond the minimal provision in the March 2020 Cares Act. The Cares Act last March 2020 exempted big corporations with more than 500 workers from providing paid leave of any amount, as well as exempted very small businesses with fewer than 50 workers. Now the ARP measure covers all workers impacted by Covid who have to care for sick family members, or fill in for child care closings, or leave their jobs to provide schooling at home for their K-6 children, or have to quarantine themselves.

Business interests fear the long term effect of providing such leave. They fear it will legitimize more permanent paid leave in future legislation. Better not to allow the precedent now, rather than fight it later.

Other proposals in the $400 Billion Part 1 will be more difficult for corporate interests to roll back. The remainder of the roughly $160 billion (after $170B for school reopening and $70B for emergency paid leave) goes to a national vaccination program ($20B), testing ($50B), the Disaster Relief fund to replenish stocks of Personal Protective Equipment (PPE), pandemic supplies like developing more therapies. A further amount, not specified, is allocated to International Health Groups (presumably the WHO) which conservatives will fight to remove. There’s also calls for OSHA to issue Covid protection standards and provide money grants to organizations that implement them. That too Congressional Republicans will likely also oppose.

Part 2: $1 Trillion Direct Family Relief Proposals

A second major category of ARP spending is called Direct Family Relief. It allocates $1 trillion more in spending in addition to the $400 billion for Covid, Schools, and Paid Leave. Here the opposition will be intensely centered around the $1400 checks per person to help working households cover back rents, mortgages, keep the utilities on, and, most important for tens of millions now to provide food for their families. Biden’s ARP now extends the checks to adult dependents of households who were left out of the Cares Act’s $1200 check disbursement. The checks are a large cost item, amounting to $464 billion (for $2,000 which includes the $600 recently authorized this past December). Here the Republicans will argue it’s ‘deficit busting’.

Yet these are the same Republicans and corporate Democrats who quickly approved $650 billion in deficit busting tax cuts for businesses and investors in the March 2020 Cares Act. Then approved another $100 billion more in the December 2020 Defense Bill. Not to mention their approval of $429 bill in tax loopholes in 2019 for investors and corporations, which followed Trump’s notorious $4 trillion January 2018 business-investor tax cuts. In other words, they had no problem passing more than $5 trillion in tax cuts the past two years but now they’re crying wolf over spending for working families, students, renters, and local governments approaching bankruptcy.

Another major element of the $1 trillion proposed for Direct Family Relief is the restoration of unemployment benefits. This is the $300/week supplemental unemployment benefits just passed in December in the $900B emergency ‘mitigation’ Act. Biden’s ARP raises it a modest $100, to $400. The December 2020 bill, however, provided the extra benefits only until March, a mere 11 weeks after its authorization in December. Biden’s ARP proposal picks up after March and extends the benefits to December 31, 2021.

It’s important to remember, however, this is not a net new stimulus but a continuation of prior spending. It may help prevent a further slowing of consumer spending and its effect on the economy, but it will not constitute a stimulus as net new spending. And it doesn’t kick in until three more months. Nevertheless, Corporate interests in Congress will argue it should not be extended through next December 2021. At best, they may agree to a few more months past March instead. They’ll argue those benefits will save hundreds of billions of $ in deficits to the US budget this year.

Other proposals within the $1 trillion for Direct Family Relief that will be subject to reduction in spending include the additional $35 billion for rent and mortgage relief; the $13 billion more for SNAP and food assistance; and the $40B for assistance to child care providers and for assistance to families of essential workers, caregivers, unemployed, and women who had to leave the labor force to care for children schooling. Like creating a precedent for paid leave, Republicans and others will fight to reduce the ARP Child Care funding out of concern it will legitimize more permanent spending in these areas later.

One area that opponents won’t likely try to reduce is the further $20 billion allocated in this category to Veterans Health needs. Nor probably the provisions that subsidize COBRA health insurance payments for millions of workers forced to leave their jobs due to Covid. These payments will ultimately get into the hands of the employers and their health insurance companies, so that’ll be ok with the Republicans and friends no doubt.

The remainder of the $1 trillion takes the form of small funding increases for cash assistance for women on welfare ($1B for TANF program), for substance abuse ($4B), and for programs to address domestic violence due to Covid family stress. While the amounts are small, the idea of providing more funds for such programs will be viewed as adding non-Covid crisis related ‘wish list’ Democrat spending to the total ARP. Opponents will argue this spending is irrelevant to the Covid and economic crises at hand.

The $1 trillion also includes four tax cutting measures that impact working family households in particular: funds to help essential workers, caregivers, and jobless to pay for child care expenses; funds to expand for one year the child care tax credit for households that would allow a tax credit up to half the cost of child care expenses for each child under 13 years old, up to $4k per child (max $8K); an increase in the general child tax credit up to $3.6k per child including now children up to 17 yrs old; and increases in the Earned Income Tax Credit (EITC) for child-less adults, from $530 to $1,500 for those with incomes up to $21k per year.

While the total cost of these 4 consumer focused tax cuts is not exactly known, the idea of raising tax credits for families will be viewed by conservatives as threatening their business and investor tax credits. They will oppose these four measures or, in exchange, at best demand a further increase in their business-investor existing tax credits.

Finally, there is another element in the call to spend $1 trillion that opponents will fight against tooth and nail. It’s the proposal to raise the federal minimum wage to $15 an hour. And the call to pay essential workers retroactive hazard pay. Neither of these proposals contribute to the cost of the $1.9 trillion, their actual costs unknown at this point. Nor are they probably serious proposals for passage by Biden and the Democrats. They will almost certainly be withdrawn. At best they may constitute ‘markers’ for where future legislation may go. It will be important for opponents to get Biden and the Democrats to drop these ideas from negotiations quickly, which most likely they will.

Part 3: $440 Billion Struggling Communities Support Proposals

The third major category of Biden’s $1.9T ARP is for ‘Struggling Communities Support’. It calls for another $440 billion in spending—in addition to the $1 trillion and $400 billion noted.

Just as in the case of the $1,400 Checks, Unemployment Benefits extension, Schools Reopening and Emergency Paid Leave, the $440B in part 3 of Biden’s ARP targeting communities will be among the main targets attacked by conservative, Republican, and corporate lobbying interests.

The big target for rollback here will be the $350 billion of the $440 billion allocated for an emergency fund for state and local governments to pay for more 1st responders and essential workers needed immediately to attack the spread of Covid and accelerate the vaccination of millions before the much feared new and more infectious strains of the virus accelerate among the population. In addition to the $350 billion, an additional $20B each is earmarked for local public transport needed to keep essential workers in big cities are able to get to work and for pandemic response costs by tribal governments.

Opponents will see this category 3 of 440B as just another way to get money to state and local governments. They’ll argue there’s already funds in the $400 billion for Covid response by governments and the $350B is just duplicative.
Ever since Mitch McConnell made funds for state and local government the ‘bete noir’ of stimulus spending proposals, Republicans in particular have been adamantly against any aid whatsoever to such local governments. They’ve preferred that States and big cities go to the municipal bond market and borrow more if they need it instead. In other words, let the blue states and big cities get more in debt than they already are. Let them lay off more public workers. The McConnell strategy was to let those states and cities suffer and make them turn on their Democrat politicians. This political bias and prejudice is not gone in the US Senate. It is led by McConnell, with the Senator Paul Rand ‘deficit hawks’ faction of around 20 his main allies. That critical mass is likely to succeed in rolling back most, if not all, the provisions in the $1.9T ARP proposals associated with providing aid to states, cities, local agencies, and tribal governments.
The amounts related to rolling back state-local government assistance in the $1.9T are probably around $500 billion of the $1.9T. So the fight over them in Congress once Biden’s proposals hit the floor will be intense. And likely drawn out.

And that’s a problem for getting government spending and stimulus into the economy promptly in order to offset the likely decline continuing in consumer spending, especially in the first quarter of 2021 when it is desperately needed.
The fight in Congress over the $1.9T stimulus could actually become a long, drawn out affair—unless the Democrats and Biden want to retreat quickly on key provisions like aid to local governments, emergency paid leave, and other measures in order to get some kind of a quick agreement. That is quite possibly what they’ll do, especially if the economy continues to deteriorate noticeably in the first quarter.

If Biden and friends do not reduce their $1.9T, the actual economic stimulus effect will be delayed and with it the economic stimulus effect. But, conversely, if the $1.9T is significantly reduced, that too will reduce the economic stimulus effect. It’ a ‘lose/lose’ scenario for the economy.

Some commentary among progressives is already arguing that the Democrats in the Senate can bypass the Republican opposition and quickly pass the $1.9T by reverting to what’s called the ‘Budget Reconciliation’ rule. This allows the passage of legislation by a simple majority instead of the Senate’s otherwise archaic 60 votes rule for passage. But Democrats have only a 50-50 Senate margin, with the Vice President voting for a 51-50 narrowest majority. That assumes, however, that all 50 Democrat Senators will vote in support. There are a number of them, however, who are closer to Republicans in their corporate affinities than to their Democrat colleagues. It is no guarantee that a budget reconciliation strategy will therefore succeed.

Part 4: Modernize US Government Technology & CyberSecurity

A final part 4 of Biden’s $1.9T ‘American Rescue Plan’ addresses spending to upgrade and improve federal government use of technology, especially where cybersecurity is involved. Amounting to a couple tens of billions of dollars and the remainder of the $1.9T it is clearly an ‘add on’ unrelated to the Covid, Family, and Community Relief proposals. It is more a matter of infrastructure spending which Biden promises will come in a subsequent set of proposals for government spending and investment later this spring. Republicans and opponents of the ARP will no doubt argue it should be suspended until then, and will move to have it considered in that later legislation.

Based on the preceding possibilities it’s reasonable to assume as much as $500 billion could be cut by Congress once conservatives, Republicans, and Corporate Democrats in the Senate get their claws into the $1.9 trillion package. What remains moreover will almost certainly be delayed well beyond February. In short, very little of the ARP will come in time to slow the US economy’s current first quarter trajectory.

Addendum: What’s Actually Net Stimulus in the $1.9T

Apart from the Congressional cuts likely coming, there are still other reasons why Biden’s ARP proposals economic impact will not be the full $1.9T.
A good part of what remains of the $1.9T is not really net new or additional economic stimulus in the first place. A significant part represents just a continuation of prior spending levels. At best it can serve to help mitigate an even more serious economic slowdown. But it won’t qualify as a net stimulus.
For example, the unemployment benefits in the ARP don’t kick in until after March and just represent a continuation of the benefit spending levels. The extension continues until the end of 2021. That could be as much as around $300 billion of the $1.9 trillion. Then there’s the four consumer tax credits. That effect won’t be felt until households filing their 2020 taxes start to get tax refunds. Those refunds will be late this year. Households will wait until the passage of the ARP before they file tax returns in order to see if in fact they can claim the tax credits and get the refunds reflecting them. Refunds will not flow into households until later this summer as a result, especially if the passage of the ARP Act is delayed in Congress. That could amount to another $100B or more in reduced stimulus effect.

So the actual stimulus effect of the ARP might be as little as half the $1.9T. $500 billion cut by Congress. Another $300B that’s just continuation of benefits. $166B that will have already entered the economy as the initial $600 checks. And $100B in consumer tax credits.

In short, the actual stimulus to the economy could amount to barely $1 Trillion, not to Biden’s announced $1.9T.

Will that be sufficient to generate a sustained economic recovery in 2021. Not even close!

Biden and the Democrats are thus confronted with making the same error that the Obama administration did in early 2009—not providing a sufficient fiscal stimulus to generate a sustained recovery. Having failed in that objective in 2009-10—despite a far more solid majority in Congress than Biden now faces—Obama turned to even more tax cuts in 2010 for business. That did little to reverse the recession for tens of millions of working families and small businesses in the US. The direct consequence of that was the Democrats severe loss of members in the US House of Representatives in the mid-term election in November 2010. And then the subsequent loss of the US Senate as well. And that led to policies that fueled the discontent and rise of opposition throughout the US to Democrat government—paving the way for Donald Trump.

Biden and the Democrats don’t even have the same time as had Obama in which to prevent the repeat of the last decade. They must turn the economy around quickly. They must put the Covid threat to bed by this summer 2021 at latest. They must somehow neutralize Trump, Trumpism and the proto-fascist radical right that is not going away the next four years. They must address the growing discontent with institutional racism. And they better hope that all this doesn’t eventually lead to a recurrence of a financial crisis—as debt loads accelerate in the private sector in 2021 due to a slow recovery and in turn lead to defaults and bankruptcies that precipitate a new financial instability event!

Follow Dr. Rasmus commentary on his blog at http://jackrasmus.com, on Twitter at @drjackrasmus, or on his weekly radio show, Alternative Visions, on the Progressive Radio Network weekly Fridays at 2pm eastern time, podcast at http://alternativevisions.podbean.com

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Biden on Thursday announced the outline of his “American Rescue Plan” and details are quite significant–if it can get passed in Congress. Republican opposition will be intense. Listen to my Alternative Visions show friday, 2pm eastern, on the Progressive Radio Network. Or the podcast at http://alternativevisions.podbean.com for details of plan. (A print article summary will follow here on the blog this coming weekend thereafter)

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Listen to my extended interview on the events of January 6 (and predictions for after) with Parallax Views podcast and host, J.G. Michael:

<br https://parallaxviews.podbean.com/e/capitolchaos/

Parallax Show Announcement: On this bonus edition of Parallax Views, economist Dr. Jack Rasmus, host of the Alternative Visions radio show and author of The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump, joins us to put the January 6th 2021 pro-Trump mob breach of Capitol Hill. On January 4th, 2021, Dr. Rasmus published an article entitled “What Happens January 6th, 20th & After? America’s Declining Democracy” (also available on Counterpunch as “America’s Continuing Crisis of Democracy” in which he offered his thoughts on Trump and his cohorts like Ted Cruz’s game plan for January 6th and January 20th when he is slated to leave the White House. In said op-ed Dr. Rasmus commented on how the Proud Boys and other pro-Trump elements would be on-hand at Washington, D.C. on the 6th in droves. What, though, is the end game? Dr. Rasmus offers that it is not about keeping Trump in office past January 20th, but instead part of a longer term strategy on the Trump loyalists within the GOP to keep control of the Republican Party and further mobilize and radicalize its base going into 2022 and eventually 2024. In this conversation Dr. Rasmus lay out his thoughts from this article as well giving his comment on the events of January 6th, 2021.

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