Jack Rasmus

The US govt’s most recent inflation report shows consumer prices rising past 12 months at 7% rate, up from prior report that showed 6.8%. (Really both over 10% for reasons I’ve stated before). The worst since 1981. Biden admin. spokespersons say it’s ‘slowing’. Yet prices rising first week of January twice as fast as last week of December; and 7% is more than 6.8%. Inflation will cut into 1st Quarter 2022 real US GDP, dampening consumer spending. Also, the end of child care benefit will have same effect on real consumption. Then there’s the general fall of disposable income for millions of US households due to failed Build Back Better plan, which is now not only dead but buried. Continuing problems of production and exports from China/Asia will further add to US real economic slowdown this quarter. Ditto as Omicron slows business investment and adds to workers shortages; and as Fed raises interest rates as well. Focus will be on Fed raising rates as means to slow inflation. However, Fed rate hikes depress demand which is not the problem behind inflation. That problem is in part supply side issues (US and global trade) and even more so problems of US monopoly corps price gouging. Fed rate hikes can’t effect either supply or monopoly causes. It can make households pay for inflation by rate hikes that result in layoffs in housing, autos, other big ticket purchases–just as the Fed did in 1981-82 when it raised rates to 18%. It provoked recession as solution to dampen inflation–when the real cause was OPEC and Saudi supply side cause.  Will the Fed repeat 1981 in 2022? If it tries it will fail. US economy is far more fragile today. Should Fed raise rates beyond 3% (10 yr. US bond rate now at 1.5%), it will provoke major real economic contraction–i.e. double dip recession in 2022. So it won’t and will back off, I predict.

In summary, more chronic inflation coming 2022.  More slowing US real economy this quarter.  And growing fragility in global/US financial markets as China property developers default pressures spread, contagion potential rises, US dollar rises and emerging market economies’ currencies deflate (and their economies slow).  The fiscal stimulus phase of Great Recession 2.0 is now over.  There’ll be no further fiscal stimulus for households, as Fed monetary policy turns contractionary as well with rate hikes.

Longer run conclusion: whereas Great Recession 1.0 (2007-10) was precipitated by financial markets crash that pulled down the real economy in its wake, today’s Great Recession 2.0 (2020-22) may experience a similar cause-effect but in reverse: real contraction 2020-22 followed by financial markets’ contraction (late 2022-2023).

Read my commentary of the past week below on twitter noting the key developments for prices in wake of government’s latest inflation report:

#Fed rate hike in March all but certain, as all Fed governors now lined up for it. Before rates drift up. Auto prices (new & used), houses, etc. to rise more next 2 months. Ditto as exports from China slow & US monopoly corps continue price gouging. Result: inflation continuing

#Inflation Republicans say its excess Demand from too generous stimulus. But stimulus ended in Aug-Sept. Inflation surged after. Dems say its supply. But oil, meat, grain, etc. corps have no supply problem. So what is it? It’s monopoly corps price gouging to recover 2020 profits

#Inflation there’s no shortage of domestic US oil supply. Yet US oil corps raised prices 29.6%! So not even supply supply driving oil, gas, energy inflation. So what is? Price gouging by oil corps (and other monopolies like meat producers, cereal-bread corps, etc. etc.)

#Inflation report today = 7% Dec CPI rise, so it’s accelerating from Nov 6.8%. Big driver is oil/gas up 29.6% over year. So oil corps = biggest cause of supply side inflation today, just as in 1981 when OPEC oil supply shock caused inflation. Monopolies price gouging = main cause

#Fed raising Fed interest rates will actually exacerbate & worsen supply side driven inflation. It will mean less business investment, more worker layoffs and lost wage income to spend & more labor supply shortages–all of which will add to supply side inflation in coming months

#Fed using interest rate hikes to slow inflation is like using a sledgehammer to swat flies. Powell knows rate hikes won’t check supply driven inflation. It won’t take 18% Fed rate to provoke another recession in 2022. US economy more fragile. A 3% 10 Yr. Treasury rate will do it

#Inflation Biden & media saying inflation is abating. Another lie. Govt own data show inflation rising first week of January twice as fast as during last week of December. There’s so much lying going on, from both wings of capitalist party–radical right/Republicans & Biden/media

#Inflation In 1981 inflation 10% due to supply side issues with global oil imports, caused by OPEC & Saudis. US response: get Fed to raise rates to 18%. Autos, housing, crashed. Investment & wages fell. Recession. Demand was used to address Supply cause. Fed planning same 2022.

#Inflation CPI up 7% again December-most since 1981. Inflation not slowing. So what’s Biden proposing? More competition for monopolies like meat producers. When asked by nat’l media today what’s being done about supply driven inflation, Biden’s Director of CEA ducks the question

#Fed As inflation accelerated in 2021 Fed refused to raise rates. Now as wages try to catch up to prices, Fed says will soon raise rates =Fed trying to protect profit margins of corps & businesses, not really to stop inflation which is supply driven & rate hikes can’t slow

#Wages Govt & Media hyping 4.7% wage gains past 12 mos. Say compares to 3% pre-covid. But inflation pre-covid 2%-2.5%. Inflation now almost 7%. So now Real Wages less than pre-pandemic.(Also 4.7% is ‘average’, so higher paid managers, tech, professionals getting > & others <4.7%)

#Fed signals will raise rates maybe as early as March, not next fall. Rate hikes to address supply side inflation work instead by depressing demand, jobs, wages, consumer spending–i.e. make workers pay for what is corp. driven supply inflation. Fed made same error in 1980-81

#Inflation Biden’s says today: “We must get to the bottom of why farmers and ranchers continue to receive low payments while families across America endure rising meat prices”. ‘Get to the bottom’? Really? Biden means let’s study & bury it. It’s obvious food corps price gouging.

#Inflation Biden’s answer to monopoly price gouging by food industry: govt give more $ to smaller capitalists to create more competition. Translated: Inflation is just an excuse for govt to provide more subsidies to corporations. Real solution: price controls + tax big food corps

#Inflation meat & food prices up 20% so far. Biden says due to lack of competition: “Capitalism without competition isn’t capitalism. It’s exploitation” (wall st. journal 1-4-22). Since all food industry is near-monopoly, it’s all capitalist exploitation.

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Listen to my January 7, 2022 Alternative Visions radio show in which I comment on the major developments and events in 2021 in the US/Global Economy (including the likely further slowing again of the economy in early 2022, continuing inflation, Fed rate hikes) and US/Global Politics (including the accelerating attack on US Democracy, the failure of Biden/Democrats to check it, and flash points in Ukraine and Taiwan). My predictions on what’s most likely to occur in US economy/politics in 2022 follow.

TO LISTEN GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-2021-year-in-review-economy-politics/

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As talking heads in media comment on this anniversary of the January 6, 2021 insurrection of the US Capitol–an event that brought home the deep and growing attack on US Democracy to the general populace–allow me to share some of my reflections as well of the past few days on the subject. Here are some of my twitter feeds and commentary on the topic. (Check out my forthcoming extended post as well, ‘The Neoliberal Origins of January 6 and Crisis of US Democracy’)

#Jan6

How to explain McCarthy(McConnell, Graham, etc.)blamed Trump for riot on Jan. 7, then joined Trump cult after McCarthy visited Mar-a-Lago? Per the ‘fly on the wall’, I’ve been told Trump likely threatened to break up the Republican party & start new one. McCarthy & friends would have been jobless in 2023

#Jan6

Was the insurrection a culmination of months-long efforts to subvert the election process? Yes. Was it also the start of a more serious undermining of Democracy by a wing of US capitalist elites and their paid for politicians? Yes. Is the other wing failing to stop it? Yes

#Jan6

Looking for historical parallels, can we call Jan 6 the US radical right and Trump’s ‘Beer Hall Putsch’? (that was the Nazis’ initial failed insurrection in 1923 Germany, after which Nazi party became Hitler’s cult and it purged any internal voices of challenge to Hitler)

#Jan6thCommittee

Here’s a Prediction: Cong. hearings will never touch the big politicians & financiers behind Jan 6 riot + after Repubs take House in Nov. 22, prosecutions will be halted, pardons granted, and if voting rights bill pass this yr (big ‘if’ per Joe Manchin) it’ll be reversed

#Jan6

On this anniversary of the insurrection & riot in DC we’ll hear a lot of talking heads lamenting the attack & crisis of democracy today. Listen close. You’ll not hear much in the way of actions to address that crisis besides Cong. hearings (to be forgotten after Nov. ’22)

#USA

Progressives & leftists think 1930s New Deal was ‘normal’ America. No, that era was historical aberration. America today has all but shed New Deal + WW2 programs & policies. Its now reverting to true USA culture, economy & society of pre-1930s period. 2020s more like 1920s

#January6

Does Jan. 6 reveals the Republican party is now at the stage of Germany in 1926. Only then did Hitler become infallible ‘leader’ of Nazi party, purging all other challengers to him internally + uniting under the Nazi party all the scum on the right. German depression began 1927-28. Liberals allowed him under the tent which he then burned down with the infamous ‘Reichstag Fire’.

#Democracy

Another ‘marker’ of its USA decline: collapse of mainstream political parties. Republican party is now a ‘cult’ with Trump in complete charge & Democrats are led by octogenarians at loss of what to do to save it, dragging their feet, debating ad nauseum, afraid to confront Trump. Wanna bet they never indict him?

#Manchin

Is playing his ‘move the goalpost’ game again, this time re. voting rights bills & filibuster. Says he doesn’t like lifting it, even temporarily, but voted to do so a month ago to pass the Dec. $768B defense bill. Says he’ll maybe support it later, but only if Republicans agree as well. (That means never, of course, as he knows well)

#January6

Democracy dies when its elites begin to abandon it. Jan 6 insurrection = tip of iceberg. In 2020, 440 anti voting bills were introduced; 88 still pending. 34 passed in 19 states. More than 130 nonpartisan state elections county directors now taken over & replaced by red state legislatures. From Supreme Ct to Senate to State legislatures, attacks on voting & democracy accelerating.

#Manchin

Dem leaders now formally give up on passing Build Back Better. Instead turn to passing Voting Rights Act. Manchin now opposed to that as well. And says he’s against changing filibuster too. Deja Vu further collapse of Dem Party. What kind of party would keep a Manchin?

#January6

Just released polls show only 10% of Republicans think January 6 riot was an insurrection. And 61% believe none of it was violent. Meanwhile, AG Garland remains AWOL & US House plods along as midterms approach, after which it will all be dropped. Dems have no strategy to check the local level ground attacks on Democracy, besides House hearings which won’t stop it

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Watch/listen to my December 14, 2021 hour long interview and discussion with the west Oakland, California ‘This Is Revolution’ group. The show’s topic: “Understanding the Biden Economy’

Biden fiscal policy outcomes, the state of the US economy, the continuing US political crisis of Democracy, and related topics summarizing Biden’s first year in office.

To watch on YouTube GO TO:

https://www.youtube.com/watch?v=81iOiBM7VfQ

To listen only (audio) on YouTube GO TO:

(Note: the first 01:30 minutes of the video podcast is an ‘avant garde’ musical intro that may be skipped to get to the interview; the intro to the audio podcast is commentary by the host)

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Here’s a 15 min. follow up radio interview on the theme of my most recent print article, ‘Build Back Better Bill Is Now DOA’.

TO LISTEN GO TO:

https://drive.google.com/file/d/1_g1r6yDQKEumkrsCLXUXcXsHxq0fesss/view

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Months ago this writer predicted that Senator Manchin would never support Biden’s ‘Build Back Better’ Bill and was simply engaging in ‘bad faith bargaining’ to string the Democrats along. Manchin’s goal was to get the Democrat leadership–Biden, Pelosi, Durbin, Shumer et. al.–to reduce their proposals, which they conveniently did, on repeated occasions.

But Manchin’s real objective has always been to shit can the bill, in order to prevent the necessity of raising taxes on corporations and investors in order to pay for it. To borrow a phrase: “It’s the Tax Cuts, Stupid!”.

The taxes involved in the Build Back Better bill were just a small part of Trump’s $4.5 trillion 2018 tax cuts. The Build Back Better bill’s funding involved partially raising Trump’s corporate taxes. But even that was too much for the thousands of corporate lobbyists who descended on Washington in recent months; their single objective has been to ensure corporate interests in the Senate–within the Democrat party as well as the Republican–don’t pass the Build Back Better bill in any form, since paying for it involved to a significant extent clawing back some of Trump’s $4.5T tax cuts for corporations and investors. Their lobbying effort has proved quite successful.

From the start, Manchin (and Sinema as back up) have been the point of the corporate spear of interests determined to block the Build Back Better bill. To try to lure Manchin into some deal, the original Build Back Better $3.5 trillion bill was reduced to $1.75 trillion by Democrat leaders this past July. Manchin then played Biden, Sanders and the rest, constantly suggesting he might agree to something amounting to that total–but putting no proposal of his own on the bargaining table at any time. That tactic, of implying he might agree, then not, is classic bad faith bargaining: that is, refuse to agree to anything your opponent proposes, suggest you might agree to something less if they put it forth in writing, but then rejecting it and refusing to make even an alternative offer. That’s classic ‘bad faith bargaining’. If that were the practice in union-labor negotiations, the union would have declared an ‘unfair labor practice’ based on bad faith bargaining, and gone out on strike.

But Biden and naive Congressional Democrats kept falling for Manchin’s bad faith bargaining trick. Democrat Senate colleagues of Manchin kept saying ‘don’t piss off Joe Manchin’ or he’ll never agree to anything’. But Joe never had any intention of agreeing to even something. That was made totally clear this past weekend when he said “NO”, he couldn’t agree to the bill in any form, as well as the way he delivered his coup de grace tot he bill: His answer to shit can the bill was given on Fox News without even notifying Biden and the White House he intended to appear on Fox and do so. When the White House desperately tried to contact him right after his announcement, he refused to take calls from them.

Historically, Manchin’s response was analogous to the Japanese not providing a declaration of war to the US before bombing Pearl Harbor. It was not only bad faith; it was treachery.

In other words, Joe Biden (the other president Joe) has been ‘Pearl Harbored’ by de facto prez Joe Manchin.

The response of Democrat leaders to Manchin’s announcement killing the bill has been typically timid. Senator Sanders replied they should put the bill to a vote in the Senate to show West Virginians where Manchin stands. As if it was not already clear to everyone! Dick Durbin’s reply was ‘let’s all go home for Xmas’ and we’ll all feel better when we return and maybe can get something done’. Such timidity reveals traditional Democrat political pusillanimity and a desperate ‘too clever’ spin that the bill isn’t quite dead. Somehow the Zombie legislation can be resurrected. But Build Back Better is not only DOA, but buried.

The charade of negotiations within the Democrat Party over the Build Back Better bill since this past July have thus come to an end, as this writer has been predicting they eventually would for months.

So what’s next? Some Democrats will try to keep the charade going. They’ll recommend the various provisions of the now DOA Build Back Better be broken out and voted on separately. All this will mean is that Manchin and the corporate interests behind him–the lobbyists and corporate supporters in the ranks of the Democrat party in the Senate–will simply have more chances to vote NO on separate provisions. The farce of trying to pass a real social spending stimulus bill will continue–with similar results.

It should be clear that Manchin represents the wing of the party–the corporate wing–that wants to prevent any further spending on social programs for the tens of millions of Americans now desperate increasingly to make ends meet. A growing faction within the Democrats in Congress see the collapse of Build Back Better as an opportunity to turn the Democrat party toward the right. They argue that by embracing Sanders’ and other proposals of the progressive wing in Congress in 2021 the leaders of the party have driven it off course. A turn to the right is thus required.

The failure to pass the Build Back Better bill represents a milestone both economically and politically and the beginning of a new phase in legislation–and in the growing economic and political crisis in America as well.

Politically, it means the Democrats are ‘toast’ in the 2022 midterm elections. It will be nearly impossible to turn around public voter sentiment by next November, which shows in many recent polls and surveys  growing disappointment, even disgust, with the Democrats failure to get needed programs passed. Biden ran on a promise he could ‘get things done’ by uniting Democrats and Republicans to pass necessary legislation to ensure economic recovery. In fact, he now has proven he can’t even unite his own party to do so.

There is also a historical deja vu moment here. In 2009 the Democrats, in control of both houses of Congress and the presidency under Obama, passed insufficient legislation of $787 billion. Obama listened to his corporate advisors and low balled that recovery spending. The result was it failed to generate sufficient jobs and economic recovery. The economy lagged and stumbled for working class America for years thereafter. That failure to pass sufficient legislation to ensure recovery for all resulted in Democrats being trashed in the 2010 midterm elections. A decade of McConnell and Republican dominance followed, fueling the Trump rebellion from the right, his election in 2016, and the passage of the $4.5 trillion corporate-investor tax cuts. Democrats are all but doomed to experience a similar political debacle in 2022 midterms.

The historical analogy can be extended. FDR faced a similar choice in 1934. His initial legislation in 1933 focused on rescuing the banks and enabling businesses to raise prices as a way to grow business profits to jump start investment and job recovery. It failed. Business interests in summer 1934 demanded more business directed subsidies, tax cuts, and support.  FDR instead turned to programs known as the New Deal. The 1934 midterm elections resulted in more gains for Democrats in Congress, which ensured the passage of New Deal legislation starting 1935.  Obama chose the opposite of FDR: Obama turned to the right and corporate policies, instead of social programs benefiting households and consumption. The outcome was, unlike in 1934, Democrats were slaughtered in 2010 midterms.

Biden’s trajectory is now similar to Obama’s in 2010 than FDR’s in 1934. The conclusions should be clear: Democrat Party 2021 is not the party of your grandfathers’ in 1934. It’s not even the party of your fathers’ in 1966. It’s now a political animal firmly in control of corporate interests.

The phase of economic stimulus measures is now over, after not even a year effort. There will now be a hiatus of spending until the Republicans take over in January 2023. Then a typical Austerity Phase will begin.  In 2009 Obama engineered his $787 billion insufficient stimulus package; only to agree in August 2011 with McConnell and Republicans to ‘take back’ $1.5 trillion in social program spending. If Biden follows Obama’s trajectory, he’ll agree to some degree of austerity after 2022 with Republicans, justifying it with ‘it could be worse’.

The US has already entered the ante-room to austerity. Early Biden stimulus from the American Rescue Plan’s $1.9 trillion package (of which only $900B was projected to be spent in 2021-22) has dissipated. The extended unemployment benefits, the rental assistance, the emergency checks are all gone. Soon to expire are the child care credits, forbearance for student loans and mortgages, and other programs. All will have a severe negative impact on consumer spending. All this occurs at a moment when it appears the new Covid Omicron variant will have some degree of negative impact on economic activity again, and as rising, chronic inflation promises to whack household real spending in 2022 big time as well.

In short, economic consequences to the defeat of the Build Back Better bill will be the main economic story in 2022. Democrats are failing once again to provide sufficient economic stimulus to ensure a sustained economic recovery. Longer term, through 2024, the economy will experience brief, weak recoveries followed by short, shallow relapses of economic recovery–as it did post 2010 under Obama.

Bidenomics is now become just retread Obamanomics.

Politically, the consequences in 2022 will be similar to 2010 as well : Democrats will almost certainly be trashed in 2022 midterms–especially since Manchin, Sinema and others are also prepared to shit can any voting rights bills.

Democrats are showing once again they are incapable of resolving the crisis–economic and political–now confronting the country.

Sanders’ and their progressive wing’s so-called ‘Inside Strategy’ of reforming the party and returning it to its ‘new deal’ roots is now clearly a failed strategy as well. The progressive wing capitulated in the House in November and is now in total disarray. All Sanders can say is ‘let’s embarrass Manchin’ by putting the Zombie Build Back Better bill to a vote.

So which way the Democrats 2022-24? The way now points to a new debacle in 2022, concessions to McConnell the next two years, and a likely resurgence of the right 2022-24. In 2024 it’s like there will be a return of a more clever Trump-like candidate in a DeSantis or something–if not Trump himself as Democrats bungle their January 6 investigation and their Attorney General Garland continues to go slow on Trump.

In short, the political crisis of Democracy in America will continue to deepen, the US economy will stumble along at best, and concerned Americans will have to decide whether to throw their support again, a third time, to Democrats who have proven twice now incapable of resolving the twin crises of democracy decline and faltering economic recovery. The old saying of ‘Fool me once, shame on you; fool me twice, shame on me’, applies here.

Democrats have been given a majority control of the Presidency and Congress twice–in 2009 and 2020–and have failed twice to deliver anything but tepid, and ultimately insufficient, policies. The first in 2009 as tragedy; the second in 2020 as farce, as the saying goes. History now shows both parties–Republican and Democrat–are ultimately controlled by corporate interests. Perhaps a more accurate description today should be in America today we have now a single party, a Corporate Party of America, with two wings, Democrat and Republican.

Should voters choose to get fooled a third time is the question? Or should they perhaps seek a different, independent organizational alternative? If the latter, there’s no time to lose since Time is clearly running out.

Dr. Jack Rasmus
December 20, 2021

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Watch my Youtube interview of this past week on Neoliberalism and its future (or not) in USA, with Pat Cummings & Greg Godels of ‘Coming From Left Field’ show.

We discuss origins and future of Neoliberalism and related subjects at length over the course of 75 minute show. Topics included: US economic restructurings since 1910, Neoliberalism as 3rd restructuring in wake of 1970s decade crisis, Neoliberalism’s material basis as policy and economic restructuring, the ideology of Neoliberalism, 4 core economic policies of Neoliberalism, Trump’s effort to create a more virulent form of it, why Biden’s a neoliberal, the current crises of political democracy and parties in the US, and prospects for what comes next this decade.

To watch on Youtube Go To:

https://www.youtube.com/watch?v=-iQxgGse0ZY

To watch on Apple Podcast Go To:

https://podcasts.apple.com/us/podcast/coming-from-left-field-video/id1553630022

To listen to audio only on Spotify Go To:

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December 3:  (Jobs Report, Inflation, & Artificial Intelligence vs. Future Jobs)

https://drive.google.com/file/d/1VXjuDp8ukUiBE4GKTr0bl7Sy_EXVK1Pn/view

November 26: (Consumer Spending, Supply Chains)

https://drive.google.com/file/d/1iJOZIom_G2cud0PIROSTDIscBQGs5WG7/view

November 24: (Fed Powell Appointment, Inflation & Interest Rates)

https://drive.google.com/file/d/1PLjoemK6h5nVeF9IvVK5ZgoMpx9NOJH8/view

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I’ve recently had an exchange on my Twitter account with a couple academic economists who believe MMT (Modern Money Theory) is the silver bullet answer to the growing instability of capitalist economy in the 21st century, it’s inability to generate sustained economic growth, and growing inequality (wealth, income, all forms) in the process of failure to provide sustained growth or stability (in employment, inflation, etc.). These economists too cleverly post their own views without acknowledging my points, so I’m here summarizing some of my views to date on MMT. (I reserve my final views pending my completion of my full analysis of the major advocates of MMT–Kelton, Wray, others). But for now, this is how I see it:

The 7 Propositions:

#MMT is a naive academic theory that thinks you can somehow get the capitalist Treasury & central bank (Fed) to abandon its primary mission to protect & preserve the capitalist banking system and somehow employ monetary policy to serve the country and economy as a whole.

#MMT Here’s more my view of MMT: a theory that stands ‘Keynesian Economics’ on its head & views monetary policy as solution to capitalist instability. But don’t confuse MMT or Keynesian economics with ‘Keynes’ Economics’. Keynes thought little of monetary solutions of any kind

#MMT: What’s the ‘achilles heel’ of MMT? the failure to understand the political system: neither Congress or parties will ever allow the Fed (or US Treasury) ever to become a bona fide national public bank that’s a prerequisite to implementing MMT. That is, it’s politically naive.

#MMT: In my discussions with academic MMTers I find that few have either read Keynes’ Ch. 12, 24 of his General Theory (or don’t understand it). In it, Keynes noted 2 ‘achilles heels’ of capitalist economy: inability to provide full employment + inherent drive toward inequality

#MMT Mainstream Keynesian Economics is a bastardized version of Keynes’ Economics. Keynesian reintroduces notions Keynes rejected. MMTers reject Keynesian but have more in common with it than they do with Keynes’ economics (most MMTers either haven’t read or don’t understand it)

#MMT is an offshoot variant of Keynesian economics, both of which are part of the school of post-Keynes econ analysis called Neoclassical Economics–which cherry picks select propositions of Keynes & merges them with pre-Keynes classical econ notions that Keynes himself rejected.

#MMT my prior 6 posts on MMT in no way suggests I believe that Keynes himself had all the answers. Neither does Minsky. Nor Marx. But I suspect the truth of 21st century capitalism lies somewhere in the intersection of the honest empirical work of all these three.

#MMT Now that I’ve turned the light on in the bathroom of Mainstream/MMT economics, let’s see what academic cockroaches will scurry out of the corners behind the bowl.

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Today the mainstream media made a big deal about new weekly unemployment claims hitting a record low of only 199,000 last week. But the truth, as always, is in the details and not the headlines.

There are three reasons why new claims are at record lows:

1. In September the Biden administration allowed unemployment benefits for independent contract workers (gig, freelancers, etc.) expire altogether. There are at least 10 million such workers in the US. If there’s no longer an unemployment benefits program with which to file for benefits, that fact will of course eliminate a large number of new claims. Independent contracts may be jobless but they won’t file a new claim because there’s no program any longer.

2. At least 4 million workers have dropped out of the labor force altogether since the start of Covid in Feb. 2020. At least three and a half million are still dropped out. Probably 1-2 million are early retirees. Ordinarily if they were in the labor force they’d file for unemployment benefits–i.e. new claims. However, if they’re drop outs they are no longer eligible for filing a claim for benefits.

3. Also ineligible to file a claim for benefits are workers who just quit their jobs. We know job quits are high and continue as workers refuse to go back to low paid dead end jobs. (see my post ‘The Great Strike of 2021).

These three trends have been continuing since last August, and steadily reducing the number of new unemployment claims. Of course, some people have been going back to work as the holiday season approaches. But don’t think that is the full explanation for this week’s new unemployment claim lows.

Along with the news about new claims, the media is also trumpeting the message the economy is recovering robustly. Consumer spending is up. Personal income is up. And 4q2021 US GDP will be up.

What they don’t explain when they report consumer spending (2/3 of US GDP) is that the numbers reflect spending on goods and services, the prices of which are a big part of the increase. It’s mostly inflation in other words. And we know inflation is surging. Officially the CPI rose around 6% last month. But that’s a low ball estimate–with gasoline prices up 35%, food prices up 10%-20% for many items and just about everything rising, with rent prices double digit (but lowered by assuming homeowners are paying themselves rent at 2% inflation). Inflation is at least 10% year on year, and more for median income families where the weights assigned to food, lodging, gas, etc. are greater than for all the income groups. So take consumer spending numbers with a grain of salt, as they say.

That’s not to say there hasn’t been some consumer spending increase recently–as typically occurs as holidays near. But even that is distorted by end of year ‘seasonality adjustments’ to the numbers that always boost the real actual spending greater due to the statistical operation called ‘seasonality adjustment’.

The slowing of the US economy in third quarter was quite clear. After a 6.5% GDP annualized growth rate in the 2nd quarter, GDP rose only 2.1% in July-September. And now we have supply chain problems in the current 4th quarter, probably not as much business inventory accumulation (that mostly drove the 2nd quarter), and the lack of government fiscal stimulus as the spring’s $1.9T American Rescue Plan has mostly been spent, the Build Back Better plan hasn’t been passed, and the Infrastructure Plan means no actual spending into well into next year..

The US economy is now moving sideways, at best, just as Covid appears about to surge again this winter. And just as the Fed is going to raise interest rates earlier and faster. And just as consumer inflation is obviously not a ‘temporary’ phenomenon and will likely cut into real consumer spending right after the holidays.

The not so temporary inflation appears increasingly as business across the board taking advantage of global supply chain–and domestic supply problems–to raise prices everywhere. In other words, it’s a supply problem, but one that is overlaid by rising inflationary expectations by business resulting in business price gouging almost everywhere. Inflationary expectations may also be beginning on the consumer side as well, which will lead to even more entrenched price inflation driven now by rising demand pressures as well.

For all these reasons, the 1st quarter of 2022 will be a critical juncture in the already weak economic recovery. And I am not as sanguine as the mainstream media about the condition of the US economy beyond just occasional weekly or even monthly headlines for this or that economic indicator,

So that’s my ‘not so short’ short note on the current state of unemployment, inflation, and the much hyped by media US recovery.

Dr. Jack Rasmus
November 24, 2021

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