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AFL-CIO and New Partnerships with Community Groups?

Posted in Uncategorized, tagged , on September 19, 2013| 1 Comment »

Will American Unions forge new unity with progressive community groups? Will it welcome community groups into the AFL-CIO as members?

Listen to Jack Rasmus’s September 18 radio show, Alternative Visions, for a discussion with AFL-CIO convention attendees, long-time union officers, Steve Early and Carl Finamore, on this topic.

Dr. Jack Rasmus welcomes Steve Early of the CWA and Carl Finamore of the Machinists, who attended the recent AFLCIO convention where delegates recently discussed and voted on whether to bring community groups (NAACP, La Raza, Sierra Club, etc.) into the union federation as a new kind of membership.

Both Steve and Carl have more than 30 years each of experience in the US labor movement, which they bring to the discussion.

Jack introduces the show and discussion with an explanation of the dimensions of the deep decline in union labor in the USA, its failing organizing and bargaining strategies at the company level and the political level with its alliance with the Democratic Party, as well as the consequences of both. Steve and Carl discuss the resolution and scope of the decision at the AFLCIO convention to forge a deeper partnership with community organizations. How can union labor stop and reverse its slide? Jack and guests debate whether some kind of new grass roots organizational structure uniting labor and community organizations must occur if union labor in the US is to survive and grow.

Url for the radio show is: http://prn.fm/2013/09/alternative-visions-091813/

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The Federal Reserve, QE, & Jobs

Posted in Uncategorized, tagged , , , on September 15, 2013| 2 Comments »

Over the past five years the US central bank, the Federal Reserve (Fed), has printed nearly $4 trillion in liquidity (money) which it has provided to banks and professional investors. This is called ‘Quantitative Easing’ (QE). QE means the Fed essentially prints money and buys bonds—mostly toxic subprime mortgages to date—from institutional investors (i.e. banks, shadow banks, foreign banks, other investors). In addition to printing nearly $4 trillion with which to buy bonds from banks and investors, since 2008 the Fed has also conducted various ‘special auctions’, by which it has loaned additional trillions of dollars at little or no interest to banks. Still more trillions were loaned were loaned by the Fed by means of policies that resulted in near zero interest rates (between 0.1%-0.25%) at which banks could borrow money.

The Fed’s QE purchases represent a massive direct subsidization of banks and investors, since the Fed’s bond purchases were almost certainly bought in most cases at prices well above the collapsed value of the bonds—most of which were mortgage bonds including toxic subprime mortgages. But we’ll never know the exact price the Fed paid bankers and investors for the bonds, since the Fed doesn’t provide specific reports on individual deals and purchases; not even to Congress. Only the aggregate data is reported.

The total of QE, special auctions, and near zero interest rates made available to bankers and investors since 2008 comes to at least $10 to $15 trillion. Some estimates range as high as $20 trillion. The number rises still higher when similar QE and free money measures by foreign central banks is taken into account; specifically, by other major central banks like the Bank of England, Bank of Japan, and the European Central Bank (ECB).

Justifying QE1: Economic Recovery

The Fed originally argued in 2009 that this massive, free money injection and bank subsidization was necessary to stimulate the US economy and generate a sustained full recovery as quickly as possible. But even if the Fed and its policies were responsible for all the economic growth since 2009, an impossible assumption that ignores all other contributions to growth, that contribution would still amount to only 8.2% GDP growth over the past five years—which is about only half the GDP growth after five years that occurred in prior recession recoveries since the 1970s.

The Fed’s QE policies these past five years have come in four doses. There was the initial QE1 in 2009, amounting to $1.75 trillion in bond purchases. The US economy then stalled out in the summer of 2010. Then came the $600 billion QE2 in the fall of 2010. The economy stalled a second time in 2011, leading to what was called ‘Operation Twist’ (QE 2.5?) that provided another $400 billion in mortgage bond purchases. When that petered out, it was followed by QE3 last September 2012. Unlike its predecessors, QE3 has had no limit. It calls for Fed purchases of $85 billion a month for ‘as long as necessary’. So QE3 has now amounted to about another $1 trillion, and continues to rise by $85 billion every month.

While there is talk that the Fed may start to ‘taper’ (reduce) its $85 billion a month, don’t expect much of a change. Maybe $10 billion a month or so reduction. QE will therefore continue for some time. That’s because, as this writer has argued elsewhere, bankers and big investors are now ‘addicted to the free money’ regime that characterizes 21st century finance capital globally today.

Just the mention of a possible ending of QE by the Fed this past June sent bankers-investors globally into financial fits and paroxysms last June. Stocks, bonds and other financial assets fell into a major tailspin in a matter of weeks. The Fed quickly denied it had any such intention of ending QE. The markets quickly recovered and went on their merry financial bubble way once again. That event of possibly reducing QE, and financial markets’ extreme reaction, this past summer has been called the ‘taper tantrum’. What’s coming in the next few weeks, however, is at most a ‘taper tweak’.

Justifying QE2: Restoring Price Stability

The Fed initially launched QE1 in early 2009, claiming it would stimulate the economy and generate a recovery. But no such thing happened. In the summer of 2010 the economy weakened again. The Fed thereafter switched its excuse. It next argued in 2010 a second QE was necessary, this time to head off the growing trend in the economy toward deflation (price declines) at the time.

Deflation is a very dangerous thing. As long as prices continue to fall, businesses will hold off investing and consumer households from buying. For businesses, deflation creates uncertainty whether they can sell their goods at a price high enough in the future to cover their production costs in the present. For households, deflation results in consumers ‘waiting for prices to bottom out’ before actually purchasing again. The recent housing market in the US is a good example. Home prices continued to fall for four years, about 40% on average. During the period of home price declines the housing market did not recover, despite the 30%-40% price drops. It wasn’t until late 2012, as home prices began to rise, that home buying recovered a little and home prices began rising a little, by about 12-15%. Thus deflation means both business investment and household consumption ‘freeze up’. That means no recovery. The Fed therefore argued another round of QE was needed to halt deflation and get prices rising again, so that investment, consumption, and recovery could follow.

But the Fed’s claim that QE 2 was needed to prevent deflation and raise prices (to a Fed target of 2.5%), as a way to encourage investment and consumer spending, didn’t materialize either. Between 2010-2011, the period during which QE2 was in effect, consumer and wholesale prices for goods and services continued to slowly drift lower, flirting dangerously with deflation. While QE policies may—and often do—result in price bubbles for financial assets (stocks, bonds, etc.), they have little effect in terms of inflating prices for normal goods and services.

So the Fed’s QE1 did not generate a sustained recovery for the US economy (which has been bouncing along the bottom now for four years since the ‘end’ of the recession in June 2009). And its QE2 did not result in getting prices to rise to the Fed’s minimal target of 2.5%. The primary goals of QE in its first and second iteration therefore failed.

Justifying QE3: Reducing Unemployment & Creating Jobs

Enter QE3, and the Fed’s third justification for introducing yet another third round of QE3 in the fall of 2012. The new excuse was that another QE was necessary in order to reduce unemployment rates and get a job recovery underway. In September 2012 the Fed announced it would launch another QE, printing and injecting $85 billion a month into the economy, until such time as the ‘U-3’ unemployment rate fell—from the 8.1% level in September 2012 to a 6.5% target level. The U-3 rate has come down over the past year to 7.3%. Meanwhile, the more accurate U-6 unemployment rate still remains around 14% and more than 20 million continue unemployed.

But the Fed’s QE3 has not really been responsible for reducing even the unemployment rate from 8.1% to 7.3%. That reduction has been the result of millions of unemployed leaving the labor force altogether over the past year, and from jobs ‘churning’ from declined in full time jobs to increases in part time and temporary jobs.

Over the past year, 2012-2013, it is true that the US economy has created 2.3 million jobs. But this has been largely part time and temp jobs, with low pay and essentially no benefits.

‘Jobs Churn’: The US Jobs Market Today

The main characteristic of the US job market today is perhaps best described as a ‘job churn’. While the US is not losing jobs, it is not creating them very well—at least not decent paying jobs.

The US is ‘churning out’ full time jobs and replacing them with ‘contingent jobs’. Since January 2013 through July 2013, just under a million jobs were created; but no fewer than 650,000 of these were part time and temp jobs. Meanwhile, 250,000 full time jobs disappeared over the same period. This ‘job churn’ has other dimensions as well.

In addition to replace full time with part time-temp jobs, it is providing jobs for millions of new entrants (at mostly part time-temp status) as millions more leave the labor force altogether.

It is substituting high paid jobs for low paid. As a recent study showed, 60% of the jobs lost since 2008 have been ‘high paid’ (more than $18/hr. on average), while 58% of the jobs created since 2008 have been ‘low paid’ (less than $12 an hour).

Not only substituting new entrants to the labor force for those leaving the labor force; not only full time for part-time/temp jobs; not only high paid for low paid. The economy is churning out union jobs and replacing them with non-union jobs as well.

It is a sad but remarkable fact that while the economy added a couple million jobs since 2012, US unions experienced an unprecedented decline of 500,000 jobs in 2012 alone. That loss amidst job creation has never before occurred for organized labor. At that rate, its meager 6% or so unionization rate in the private sector today will fall to 3% or less by the end of the current decade—i.e. the lowest ever, signifying the virtual disappearance of organized labor in the private sector in America for all practical purposes.

QE as 21st Century ‘Trickle Down’

Notwithstanding the foregoing facts, if one still insists on maintaining that the Fed’s QE3 has reduced unemployment, it is clear that QE to date is an incredibly inefficient, costly, and wasteful way to create jobs.

For example, let’s assume QE3 and Fed monetary policy is responsible for half of all the 2.3 million jobs created over the past year—a generous assumption. But let’s assume it nonetheless. That’s 1,150,000 of the roughly 2.3 million jobs created over the past 12 months. Let’s further assume that about 400,000 of that 1,150,000 represents part time-temp jobs. Next, if two part time jobs roughly equals one full time job, that’s 200,000 full time equivalent jobs created by QE and the Fed the past 12 months. Add that 200,000 to the remaining 715,000 full time jobs assumed created by QE3 over the past year, adds up to a total of 915,000 full time jobs created by QE/Fed over the past year. Let’s round it all up, to an even 1 million jobs created by QE3.

Now let’s take the $1 trillion cost of QE3 over the past year. Divide the $1 trillion by 1 million jobs and the result is a cost of $1 million per job created. That’s an absurdly inefficient and wasteful job creation program!

So who has really benefited from the Fed’s $1 trillion QE job creation program?

Taking the calculations one further step, the average wage of the 1 million jobs is reasonably no more than $15/hr—given the composition of 400,000 part time-temp, low paid jobs in the total. That $15/hr. is about $30,000 a year. The ‘benefits cost’ load is no more than 10% of the base pay, since many of the jobs are part time-temp with essentially no benefits. That’s another $3,000. That’s $33,000. That leaves $967,000 of QE3’s Fed printed money going into the pockets of someone else other than the worker who got the QE created job!

The ‘someone else’ in this case include the bankers and investors to whom the $1 trillion was provided in the first place. The bankers and investors then mostly loaned out the QE mostly to other speculators, who in turn likely invested it in the stock, bond and derivatives markets—thereby driving up the financial asset prices for these securities which, when sold, realize super-capital income gains. Given the absurdly low capital gains tax rates that exist, the bankers-investors get to keep 85% or more of their profits (realized income). Alternatively, they might not loan out the $967,000 billion from the Fed QE windfall to other financial market speculators, but loan it to offshore emerging markets, like China. In either case, the $967,000O doesn’t create any jobs in the US since it doesn’t result in investment in the US. Or, thirdly, they might just hoard the cash; or send it to their offshore tax havens in order even to avoid paying the nominal capital gains tax; or, if they’re a public corporation, as most banks are, use it to buy back their bank stock, payout more dividends to shareholders, or use it to purchase their competitors (mergers & acquisitions). None of that creates jobs either.

The net outcome of QE is the escalating incomes of bankers, investors, wealthy shareholders and high net worth individual households. That means even more income inequality in the US.

It is not coincidental that during the period of QE1-QE3 in the US, income inequality has accelerated at an even faster pace than in the past. As the most recent data on income inequality trends, released by Professor Emmanual Saez of the University of California earlier this month as part of his on-going study of income inequality trends, shows: the wealthiest 1% households accrued 95% of all the income gains in the US economy between 2009-2012.
QEs mean bankers and investors get $967,000 and the worker gets $33,000. That’s the essence of the Fed’s current QE3 job creation/unemployment rate reduction claims!

If one were to assume this ratio represents ‘trickle down’ economics in practice today, it would mean that for every one dollar in income for the worker, the capitalist-investor-banker is now getting 29.3. Of course, that 29.3 invested in financial securities generates even more income over time. The ‘trickle down’ ratio rises further and is virtually unlimited to the upside for the wealthy investors who benefit enormously from the free money QE policies of the Fed—while workers struggle to make ends meet working increasingly part time and temp jobs with low pay and no benefits.

A ‘QE for Jobs’ Program Alternative

It doesn’t take much imagination to envision a better, more efficient, less wasteful way to create jobs. If the Obama administration had a 21st century Works Progress Administration direct job creation program, it could have the Fed print the $1 trillion QE3 and create 20 million jobs at a fully loaded full time $50,000 a year. That would instantly wipe out every U-6 jobless person in the US. That’s 20 million jobs at $50k vs. the Fed’s current ‘unemployment reduction program’ of 1 million jobs at $33k.

Why should the Fed print money and subsidize the incomes of super-wealthy investors and their banks? Why shouldn’t the Fed use its printing press to instantly finance the creation of 20 million jobs directly by the US government? That’s a jobs program that would add nothing to the US deficit and debt, just as the Fed’s QE programs have added nothing to the US deficit and debt.

Those who argue to do so would result in a major inflation are simply ignoring the facts. Nearly $4 trillion in QEs to date have had no effect on inflation in goods and services. They have only inflated financial securities prices. Inflation in real goods and services continues to drift lower, flirting with bona fide deflation. If the Fed wants the get goods and services inflation to rise to 2.5%, a QE for Jobs program noted above would likely do it.

Others might argue that a $1 trillion ‘QE for Jobs’ program would mean the Fed would have to print $1 trillion every year to keep paying for the jobs in subsequent years. But that’s nonsense. It doesn’t take much imagination to understand that $1 trillion in jobs-related income in the hands of 20 million workers would result in a major boost to consumption. That in turn would result in businesses finally investing in the US and creating jobs to match the consumption demand. As real investment rose, the Fed ‘QE for Jobs’ might actually be scaled back in magnitude.

A ‘QE for Jobs’ program would also represent the greatest reduction in income inequality overnight in US history. It would also mean an annual first year boost to consumption of at least $500 billion. Considering possible ‘multiplier effects’, that would mean a boost to US GDP of more than $1 trillion. That would in turn easily push the US economic recovery to an annual GDP growth rate of more than 7% to 8%–and result in the fastest (not currently slowest) economic recovery on record for the US.

Jack Rasmus
September 15, 2013

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My Recent ‘Tweets’ on the Economy

Posted in Uncategorized, tagged , on September 12, 2013| Leave a Comment »

I WOULD LIKE TO EXTEND ONCE AGAIN AN INVITATION TO READERS OF THIS BLOG TO JOIN ME ON TWITTER AT: @drjackrasmus.

THIS BLOG PROVIDES INTERMEDIATE ANALYSES. MY TWITTER ACCOUNT OFFERS BREAKING NEWS AND COMMENTARY.

A sample of my recent ‘tweets’ on the economy over the past three weeks, August 20 to Sept. 7,are as follows:

• Dr. Jack Rasmus ‏@drjackrasmus 1m

Is Eurozone Econ Recovery underway? Don’t bet on it. Today’s Industrial Production rept. shows -1.5% decline for July vs. forecast of+ 0.1%

• Dr. Jack Rasmus ‏@drjackrasmus 3h

Latest IRS data study shows Top 1% accrued 95% of all income gains, 2009-2012. Remaining 99% declined 0.4%. Median and below, big declines.

• Dr. Jack Rasmus ‏@drjackrasmus 6 Sep

Read my piece tomorrow (9-7) on the Znet blog: “Larry Summers-Next Fed Chairman?” And why there’ll be no ‘Summers Effect’ as Fed chair.

• Dr. Jack Rasmus ‏@drjackrasmus 6 Sep

Obama should have been a union rep. Then he’d know “never take a strike vote unless you know they’ll vote yes” (Syria=big egg on his face)

• Dr. Jack Rasmus ‏@drjackrasmus 6 Sep

Check out my blog piece, ‘Federal Reserve Policy-Past Failures and Future ‘Tail Risks’, at http://jackrasmus.com .

• Dr. Jack Rasmus ‏@drjackrasmus 6 Sep

Will Fed now back off from QE 9-18? No. A very slow, token reduction in the $85B/mo. money injection-watch for $75B or a reverse repo deal.

• Dr. Jack Rasmus ‏@drjackrasmus 6 Sep

Another stagnant US jobs report + only 100,000 jobs in July. US barely creating (low pay) jobs for new entrants. And as jobs ‘churn’, wages burn

• Dr. Jack Rasmus ‏@drjackrasmus 5 Sep

Frontpage mainstream press (NY Times, Journal, CNN) articles today featuring Larry Summers. Is Summers’ Fed Chair announcement imminent?

• Dr. Jack Rasmus ‏@drjackrasmus 4 Sep

Money flooding out of Asia, Brazil, Turkey,etc. back to US, EU. Export gains US/EU at expense of Emerging Mkts. No net gain for world econ.

• Dr. Jack Rasmus ‏@drjackrasmus 4 Sep

G20 meets in St. Petersburg Thurs. #1 issue? Not Syria. But emerging markets crisis: capital flight, currency freefall, commodity deflation

• Dr. Jack Rasmus ‏@drjackrasmus 30 Aug

Will the Fed ‘taper’ after 9-17? Will Summers get appointed next Fed chair? Will Obama send missiles into Syria? Do bears live in the woods?

• Dr. Jack Rasmus ‏@drjackrasmus 30 Aug

US consumer spending last month=0.0%, adjusted for inflation (Consumption=70% US economy). Banks lower 3Q13 GDP estimates to 1.5%. Recovery?

• Dr. Jack Rasmus ‏@drjackrasmus 30 Aug

Why did Obama & Repubs agree Jan. 1 to extend $4 trillion of the $4.6T Bush tax cuts?So corps could give $821 bil. to stockholders this year

• Dr. Jack Rasmus ‏@drjackrasmus 29 Aug

India economy ’emerging’ as weakest of emerging markets. Watch for 2% GDP or less in 2014. Currency (Rupee) to fall to record lows

• Dr. Jack Rasmus ‏@drjackrasmus 29 Aug

Emerging mkts quadruple crisis: rising US rates, capital flight to safe havens in west, commodities deflation, and soon to rise oil prices.

• Dr. Jack Rasmus ‏@drjackrasmus 29 Aug

Re. growing assault on democratic rights in the USA, see my blog http://jackrasmus.com article ‘North Carolina’s ‘Moral Mondays’ movement’

• Dr. Jack Rasmus ‏@drjackrasmus 27 Aug

Watch for coming ‘tail events’ causing market declines: Fed taper, debt ceiling fight, & emerging mkts capital flight–converging late Sept

• Dr. Jack Rasmus ‏@drjackrasmus 26 Aug

So bus.spending biggest fall since 2008, consumer-retail sales flattening, and home sales in freefall. OK, so where’s the recovery (again)?

• Dr. Jack Rasmus ‏@drjackrasmus 26 Aug

Data today show bus.investment fell in July almost twice as fast as consensus. Durable goods orders and shipments largest since 2008.

• Dr. Jack Rasmus ‏@drjackrasmus 23 Aug

consumer spending decelerating & flatlining-as predicted in my ‘The Stop-Go US economy’, see my blog, http://jackrasmus.com , article

• Dr. Jack Rasmus ‏@drjackrasmus 23 Aug

New home sales July freefall. My prediction rising rates (due to taper talk) will stop H-recovery sooner rather than later, now coming true

• Dr. Jack Rasmus ‏@drjackrasmus 20 Aug

The global economy, including USA, is slowly slipping into a stagnant growth scenario. The process is slow, long-term, erratic, but steady.

• Dr. Jack Rasmus ‏@drjackrasmus 20 Aug

Has the Eurozone/UK ‘recovered’? No, just following the trajectory of Epic Recession: short shallow recoveries followed by repeated relapses

• Dr. Jack Rasmus ‏@drjackrasmus 20 Aug

The locus of global economic instability is now shifting from Europe to Asia, esp. India, as China slows & Japan’s boom proves short-lived.

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Larry Summers–Next Fed Chairman?

Posted in Uncategorized, tagged , , on September 6, 2013| Leave a Comment »

When mainstream press outlets, like the New York Times, Wall St. Journal, CNN money and others, issue front page articles on a topic related to the government more or less simultaneously, it usually means they have received confidential, not-yet-for-publication notice from the government of decisions made but temporarily embargoed. So it was on September 5, 2013, that all the above noted media sources printed lead stories on Larry Summers’ candidacy for the chair of the Federal Reserve Bank. The stories have continued to appear, with the New York Times editorial page on September 6, 2013 going so far as to say “Mr. Obama is expected to announce his nominee soon…”

Is an announcement of Summers’ appointment to replace current Fed chairman, Ben Bernanke, therefore imminent?

This writer has been predicting for weeks that Summers was the heavy ‘odds on favorite’ for appointment by President Obama to replace Bernanke for several reasons.

Is A Summers’ Appointment Imminent?

Summers’ appointment may come more quickly than some think. Again, the surge of front page press articles and talking heads electronic commentary in recent days suggests it may be imminent. While current Fed Chairman, Bernanke, doesn’t officially leave until next January 2014, Obama needs to ensure there is time for the new Fed Chair’s Senate confirmation.

Then there’s the need for Obama to get his full economic team on board before the coming fight over the debt ceiling with House Republicans begins in earnest again in October 2013. Emerging Markets economies are pressing hard for a quick decision on the Fed chair to reduce the uncertainty concerning the Fed’s reported plans to ‘taper’ its $85 billion a month free money injections into the global banking system. That pending decision, and the delay, has been causing severe economic stress among many economies, like India, Indonesia, Turkey, Brazil and others. International developments perhaps slowing the decision process include Syria. But there’s little reason to assume even that will significantly delay, and may even accelerate, Obama’s decision on a Fed Chair nominee—including Summers.

The likelihood that that nominee will be Summers is further supported by the widespread and deep endorsement for Summers by Obama’s ‘old boy’ network. It has been reported, for example, that current Treasury Secretary, Jack Lew, former advisor, Obama former chief of staff, David Axelrod, Rahm Emmanuel, and McDonough, Obama’s current chief of staff, all have expressed to Obama that Summers is their preferred choice for Fed Chair.
Finally, and perhaps most importantly, it should be remembered that no one gets appointed to Fed chair, or the key New York Fed district governor, without a green light pre-approval from bankers, finance, and institutional investors. And Larry has been their ‘boy’ for decades. He has consistently proposed programs, taken positions, made recommendations, and always acted in their interests, even when doing so has meant an about face in policies and recommendations he’s made. For that, he’s been nicely rewarded over the years in terms of career advancement and income.

Summers’ Public ‘Service’ Record

An academic economist in name only, Summers started out his government career early in the Reagan administration, his early academic work arguing strongly in favor of corporate tax cuts and opposition to improving unemployment insurance benefits endearing him to the pro-business, free market Reaganites. After his Reagan years, he assumed the top role in the World Bank—a very nice preparatory appointment preparing him for even bigger things to come. He then joined the Clinton administration in the early 1990s as assistant secretary of the Treasury, serving as hatchet man for then secretary of the Treasury, Robert Rubin, a top dog at Citibank loaned to government in the early Clinton years to ensure that Clinton cut welfare and government spending and to ensure long term bond rates were reduced. The lowering of bond rates contributed much to the subsequent speculation in Asian financial markets later in the Clinton administration that resulted in the ‘Asian Meltdown’ financial crisis of the late 1990s. Larry rode shotgun for the banks in that event, making sure the US government and Federal Reserve bailed the US banks—Citibank and friends—who speculated heavily in Asian currencies and loans and then were covered for their losses by the US Treasury and Fed when the bust came.

Promoted to Treasury Secretary at the close of the Clinton years, Larry then played a central role, on behalf of the bankers again, to ensure the repeal of what was left of the Glass-Stegall Act in the late 1990s. He was also centrally instrumental in the passage of the Gramm-Bliley and Commodity Futures Trading Acts, two pieces of legislation that deregulated derivatives and other financial instruments, set the stage for the subprime mortgage bust in 2006-07, while also setting in motion repeated spikes in commodity prices (including oil) for the next decade that decimated household incomes.

Leaving the Clinton team with the advent of the Bush II administration in 2001, Larry then went out to make a lot of money, to cash in on his ‘good service’ to the banksters. He joined the big Hedge Fund (shadow banking) firm, D.E. Shaw, and also served as director on, and consultant to, other funds and financial institutions. He made speeches to business groups and conferences, for which he was compensated nicely. That’s how politicians are amply rewarded in corporate dominated government America.

He continued these lucrative appointments while serving unremarkably as president of Harvard University; that is until the liberal professors ganged up on him—not for anything he had done before for the banksters or for holding positions on boards of companies as he served as University president—but for being insensitive to womens’ issues. But that was no big deal. Harvard was just a ‘holding pen’ for him in between government jobs anyway.

With Obama’s election in 2008, Summers was immediately brought on board again. Speculation arose that he expected either the Treasury Secretary or Federal Reserve Chair position appointments. But in the midst of the worst period of the financial meltdown of 2008-09, he was asked by Obama, and accepted, the role of Obama’s number one economic advisor—taking precedence over the Chair of the Council of Economic Advisers, Christina Romer, whose position typically has played that role.

In this role as chief adviser to Obama, Summers was reportedly the key architect of Obama’s first Economic Recovery Program, a package of $787 billion fiscal measures, tax cuts and government spending. This fiscal stimulus was heavily overweighted on business tax cuts and subsidy payments to the states for one year—with no programs of any note to save the millions of homeowners being foreclosed at the time or to ensure jobs were created in exchange for the tax cuts and subsidies (which weren’t). The emphasis on business tax cuts showed Summers’ views on that topic had not changed much since his Reagan years.

In a New Yorker magazine article last year, it was reported how in early 2009 Summers argued in the Obama administration strongly for a minimalist stimulus program—no more than $800 billion—again composed mostly of business and investor tax cuts—as well as for a bail out of the banks that involved the Federal Reserve essentially writing a ‘blank check’ for the banks. He argued banks had to be bailed out first, at whatever the cost. But the rest of the economy could not spend more than $800 billion in fiscal stimulus, he further recommended to Obama. While others in the Obama administration—like CEA chair Romer—advocated inside the administration for more than a $1 trillion in fiscal stimulus, Summers insisted on the lowest ball stimulus. Even Congress initially proposed more than $900 billion. But the consumer tax cuts were largely stripped out from the Congress proposal in the final $787 billion package that Summers recommended, and President Obama chose to approve. (For a more detailed analysis of these details, see this writer’s 2012 book, ‘Obama’s Economy: Recovery for the Few’, Pluto press).

The barely 5% of GDP stimulus of $787 billion soon dissipated after a year, the economy relapsed in the summer of 2010, housing foreclosures spiked, job losses reappeared, the states ran out of their subsidies, and the US economy ‘bounced along the bottom’—and has continued to do so for the past four years.

Meanwhile, bankers and investors feasted on the more than $10 trillion in free money generously doled out by the Federal Reserve—in the form of five years of nearly zero interest rates and three editions of ‘quantitative easing’ (QE) Fed direct purchases of bad subprime mortgage and other bonds from investors, most likely bought at above prevailing market values for those securities. But the public will never know the exact price the Fed paid for the junk via QE, since the Fed refuses to reveal details even to Congress.

During his two years, 2009-10, in the Obama administration, Summers also played a key role in the housing non-recovery. The pittance that the Obama administration earmarked for homeowners’ bailout, less than $50 billion, in the form of his busted HAMP program, mostly went to banks as subsidy payments to bribe banks to lower mortgage interest rates. Of course the banks took the bribes, but preferred to offer the lower rates to new home buyers, instead of refinancing for existing homeowners. You can charge fees on the former and make still more money, while homeowners in foreclosure can be better ‘milked’ by letting them foreclose and collecting credit default swap bets previously place on them. More than 15 million foreclosures were the result.

Summers: Chameleon Economist of Corporate America

Summers was somewhere involved in all these policy fiascos—-from the original $787 billion, business tax cut heavy stimulus, to the generous bankster bailouts, to failing to prevent the homeowner foreclosures (while subsidizing mortgage lenders).

The point of this Summers’ policy history review is to show that Larry Summers has always done what the banksters have wanted—and he’ll do that again when appointed as Federal Reserve chair.

Therefore, contrary to what some pundits have been saying, there will be no ‘Summers Effect’ if he is appointed. Summers’ appointment will not spook the markets. Most assume it will happen. There will be no major departure under Summers from existing Fed policy under Bernanke.

There is no contradiction between what Summers as Treasury Secretary did for the banksters in the late 1990s in pushing financial deregulation and what Summers (or any future Fed chair) will do with QE and zero bound interest rates. Both result in rentier (i.e. super) profits for financial capitalists. In the former case, deregulation released banksters to achieve super profits by means of extraordinary asset price inflation; in the QE case, to achieve super profits by reducing interest costs to virtually zero, and by the Fed printing money, QE, to buy back bad subprimes at more than their busted market value (taking the ‘bad debt’ from private speculators onto its own Fed balance sheet.

Larry did their bidding back then, and if (when?) appointed, he’ll do it again. He’s always done it. And for that he’s been nicely rewarded over the years. In his latest personal financial records he admits a net worth of as much as $24 million. He didn’t accrue all that from his salary for service in government over the years, but from his connections to hedge funds and other corporate buddies.

Dr. Jack Rasmus, copyright
September 2013

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Federal Reserve Policy: Past Failures & Future ‘Tail Risks’

Posted in Uncategorized, tagged , , , on September 6, 2013| Leave a Comment »

The following is an excerpt from a longer feature article–“Larry Summers–Next Fed Chair?”, which can be accessed this weekend on my website, http://www.kyklosproductions/articles.html.

“The Fed soon plans to ‘taper’ its existing policy of QE after its next September 18 meeting. A Summers at the Fed helm will represent no major change from this. The Fed without doubt will taper later this year, but very very slowly. Instead of $85 billion a month in ‘free money’ for banksters, speculators, stock and bond traders, and the very high net worth individuals—i.e. those folks that drive the financial markets globally—the Fed may reduce that to $75 or $65 billion. Big deal. Or the Fed may try to indirectly cut back on the free money spigot by a policy of ‘reverse repos’ (don’t worry, no need to understand that financial legerdemain). But none of that will stop the banksters and company from using the remaining mountain of virtually free cash to speculate in stocks, junk bonds, foreign exchange, and derivatives to keep the ‘global money parade’ going.

The ‘wildcard’ in this monetary policy poker deck, of course, is what’s happening with the emerging markets right now. Just the talk of the Fed tapering has driven bond rates up by nearly 100% in the last few months. The 10 year T-Bond was 1.6% this past spring; it’s now 2.9% and will almost certainly go higher.

That rapid rate shift is now resulting in the trillions of dollars of Fed money injection of the past five years flowing into emerging markets, especially Indonesia, India, Brazil, Turkey and So Africa (now referred to as the ‘BITTS’). Now that mountain of liquidity (money) is flooding back to the US and Europe. That reversed flow—precipitated by the Fed’s upcoming QE policy shift—is resulting in currency collapse in these emerging markets, massive capital flight back to the west, worsening trade deficits, commodities price deflation, coming oil price inflation, and in turn what will prove a significant slowing of these countries’ real economies that will in turn further exacerbate all the above.

In other words, the locus of the global economic crisis is now quickly shifting—from Europe in particular to Asia, emerging markets, especially the BIITS (Brazil,India, Indonesia, Turkey, So. Africa).

This growing instability may result in the Fed moving toward a ‘tapering’ of QE even more carefully and slowly. But it doesn’t matter who’s leading the Fed. Whether Bernanke or Summers, or even someone else, the Fed policy will not change significantly. Again, forget any ‘Summers Effect’. Summers will do as he always has done for the banksters: ensured their interests are protected—whether offshore or in the US.

In conclusion, whomever assumes the role of Fed Chair—Summers, current Fed Vice-Chair, Janet Yellen, or some compromise candidate like Fed governor, Kohl—will have to address a new ‘tail risk’ domestically, as well as globally (e.g. emerging markets crisis).

The domestic tail risk may prove to be a US economy and economic recovery that is highly sensitive to interest rate hikes, already having risen more than 1% since June for mortgages and other loans. US monetary policy makers have experienced nearly five years during which lowering interest rates to record levels has produced very little recovery in the real economy—i.e. housing, jobs, or real investment in the US—even as those record low rates produced a boom and bubble in financial securities investments, in stocks, bonds, derivatives, etc.

It may soon be revealed that the US economy is extremely sensitive to increases in interest rates, just as it has been largely insensitive to reductions in interest rates the past five years. The markets having become addicted to free money and super-low rates for five years may act like junkies without their fix if the Fed goes ‘cold turkey’ on them. If so, and interest rates in the US rise even moderately, then the US economy’s latest tepid rebound will quickly result in yet another ‘relapse’.

Jack Rasmus, copyright, September 2013

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Interview with ‘Moral Mondays’ North Carolina Organizers

Posted in Uncategorized, tagged , , , on August 30, 2013| Leave a Comment »

As an addendum to my just posted article immediately preceding, ‘Defending Democracy: North Carolina’s ‘Moral Mondays’ vs. Washington DC’s ‘Wistful Wednesday’–listen to my Alternative Vision radio show interview of August 28, 2013, with organizers of the Moral Mondays movement in North Carolina:

Download and listen to interview at: alternativevisions.podbean.com

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Defending Democracy: North Carolina’s ‘Moral Mondays’ vs. Washington DC’s ‘Wistful Wednesday’

Posted in Uncategorized, tagged , , , , on August 29, 2013| 1 Comment »

On Wednesday, August 28, 2013, the 50th anniversary celebration of Dr. Martin Luther King Jr.’s 1963 March on Washington, commemorative speeches spilled out over the DC mall. From President Obama and other carefully selected political ‘notables’, speakers sought to identify themselves with King and the historic event of 1963.

In a series of carefully scripted speeches—in some cases closely edited, according to reports, to avoid any indication of calls for grass roots action or a new civil rights movement—speakers talked mostly of the great achievements in civil and democratic rights in America set in motion by the historic 1963 event.

While politicians strained to identify themselves with, and wrap themselves in, the achievements in democratic rights set in motion by King and the 1963 march, none had much to say about what practical steps should be taken to address the growing assault on democratic, civil and labor rights rapidly gaining momentum today across the land.

While some speakers lamented in general terms the growing attacks on voting and other democratic rights now spreading from state to state, most had little to say about what should be done. Instead, they mostly patted themselves on the back, saying in effect, ‘we’ve come so far, haven’t we’? ‘Yes, there’s still more to do, but we have achieved so much’.

But as they applauded and offered little, the greatest attack on democracy in America in at least a half century has continued to gain momentum.

Washington’s ‘Wishful Wednesday’

While speakers and politicians mostly congratulated themselves in Washington, in state after state laws continue to be passed and implemented imposing new limits and restrictions on democratic rights—not just for minorities but for students, the poor and the millions still effectively disenfranchised. State governments also now increasingly run roughshod over local and city-level democratically determined decisions. And at the federal level, as President Obama hailed King’s contribution to democratic rights on Wednesday, his own administration continued its daily assault on the US Constitution—in particular the 1st and 4th amendments of the Bill of Rights ensuring freedom of speech and prohibition against unnecessary search and seizure.

Attacking Voting Rights

At the forefront of the attack on democracy in the US today is the proliferation of voter rights suppression legislation at the state level. From Texas to North Carolina and beyond, attacks on the fundamental right even to vote have been spreading the past two years. But the attackers have been given a further ‘green light’ to suppress voting rights by the US Supreme Court this past June 26, 2013, in its Shelby v. Holder decision.

In that decision, the court decided the Federal government must withdraw its oversight of States’ voting procedures, as was previously required under the 1965 voting rights law. The decision has since opened a political ‘pandora’s box’, encouraging more states to introduce legislation to suppress voters’ rights and states with such laws to make them even more draconian in the future.

The Supreme Court’s June decision was more than a little ironic. In one sense, the court’s action marks the end to what might be called ‘voting rights reconstruction’ in the US, contained in the form of the 1965 voting rights act. As speakers on the mall on Wednesday, Augusts 28, 2013 were hailing the achievements of the 1963 march that led to the voting rights act, the Supreme Court just weeks before was gutting the same act just across the street from the mall.

The Supreme Court’s recent decision is historically ironic in yet a further sense. Its ending of ‘voting rights reconstruction’ embodied in the 1965 voting rights act is reminiscent of the Supreme Court’s decisions in the 1870s that bought to an end the effort to politically ‘reconstruct’ the southern confederate states following the Civil War to provide democratic rights for all. The 1870s ‘end of reconstruction’ meant a general retreat from enforcing the 13th and 14th amendments to the US constitution. Similarly, in 2013, the US Supreme Court in effect abandoned the effort to ensure voting rights for all. The attack on voters rights of course predates the Supreme Court decision. But that decision nonetheless has now provided significant encouragement to States to expand and deepen the limits on voters rights.

Key elements of voting rights suppression introduced state by state in recent years (now soon to expand no doubt) include new forms of voter ID requirements. Elimination of the right to pre-register to vote. Abolishing of Party line voting, thus ensuring conservatives and business interests get to effectively negate any third party, progressive or even liberal candidates getting nomination from their party. And new forms of ‘poll taxes’. (For example, denying families claims for dependent tax deduction for a student if the student votes at the college location instead of the parents’). For a litany of the possible tactics and measures involved in voter suppression, readers should take a look at North Carolina’s recent 50 page voter rights suppression legislation.

Many of these voting rights suppression measures are in fact ghost-written by billionaire-funded right wing organizations like ALEC, the American Legislative Exchange Council. Holding regional level conferences throughout the US during the year, ALEC essentially writes the voting rights suppression legislation, pays for state legislators and their staffers and families to come to the conferences, instructs them how to write the bills, and even provides them with the legislative boilerplate to take back and pass. If anyone thinks the power of lobbyists in state houses and Washington is a major problem, forget it. Who needs lobbyists to influence the drafting of legislation in State houses and Congress when you can write the bills for them beforehand? That’s ALEC.

But no direct or immediate challenges to the Supreme Court, to ALEC, or to the growing state level implementation of voter suppression were called for in the speeches on the Washington mall on Wednesday. Just generalities and faint references in passing to the growing problem amid grand statements as to ‘how far we’ve come since 1963’. No specific calls to direct resistance or civil disobedience—i.e. the heart of Dr. Martin Luther King’s message in 1963. Trust the politicians in Washington, we’re told. They’ll later address the problem of disappearing democratic rights in America.
They’ll protect us… But don’t bet on it.

The defense of democracy will only come from the source and location from which it originates in the first place—from the grass roots. From relying on our own independent political action—not on politicians who today are more in the employ of the wealthy and their institutions than ever before in recent memory.

Attacking Rights Beyond Voting

The growing attacks on democratic and civil rights now in the US involve not only the roll back of voting rights. Local forms of democracy are also under direct attack in the US. Cities and local jurisdictions in growing numbers are being deprived of their own basic democratic rights by governors and state legislatures from Michigan to California to North Carolina. Decisions by local citizens or their locally elected representatives are being reversed by dictate by state politicians, who more often than not are bought by wealthy and business campaign contributors or lured by the prospect of some future ‘revolving door’ job with corporate America.

Nor is the problem of democracy under increasing attack in America limited to state and local government. At the federal government level, the US Constitution’s Bill of Rights itself is increasingly the target.

Professional journalists’ first amendment rights and freedom of the press are under assault on multiple fronts by the federal government today as never before in recent memory. Obama’s own Justice Department is at the forefront of this effort, subpoenaing and forcing journalists to testify in criminal court to reveal sources—especially those associated with government employees’ whistleblowing. Once protected by law, but no longer, whistleblowers and their press contacts are subject today to a ‘full court press’ by the Obama administration. Not merely coincidental, this offensive against 1st amendment freedom of press is being orchestrated in Washington DC and the 4th district Appeals Court in the Virginia-Maryland area where the CIA, NSA, and other government security agencies reside.

The government offensive against freedom of the press has already had a chilling effect on investigative journalists, the press, and whistleblowers attempting to reveal the abuses of government. That in turn is contributing to the further ‘timidification’ of the journalist caste in the US. Is it any wonder then, given the retreat of the press from investigating the government, that citizens like Bradley Manning, Snowden, and others have chosen to act directly as whistleblowers? In times past, their whistleblowing might have been picked up by the press and communicated to the public. But no longer. At great personal risk and harm to themselves, with the public press no longer a partner, the Snowdens and Mannings have had to ‘go it alone’, fulfilling the role the public press once played in America—but does no longer.

Fourth amendment rights are also under intensifying assault at the federal level. Protections against unreasonable ‘search and seizure’, clearly protected under the 4th amendment, are being abused en masse as the federal government illegally seizes emails, phone calls, and who knows what else—for purposes yet to be fully revealed. Moreover, the National Security Agency, the NSA, and other government agencies leading this assault are busy concocting even more grandiose plans—like the yet to be fully reported ‘Gorgonstare’ program that would enable the government to video real time every person on the street in Washington DC at the same time.

As the federal government and the courts continue the attack on 1st and 4th amendment Bill of Rights guarantees, President Obama gives hypocritical speeches in Washington about the need to honor the voting rights contributions of Dr. Martin Luther King. As the Obama Justice Department initiates a token legal challenge to the attack on voter rights only in Texas, the Supreme Court’s decision goes unchallenged and more states attack local democracy and voters rights elsewhere along an expanding front.

If you want to watch democracy being rolled back, go to Washington DC. If you want to hear generalities without specifics and what won’t be done, listen to speeches on the Capitol mall. But if you want to know how people at the grass roots are actually fighting back to defend their democratic, civil, and voting rights, then go to North Carolina.

North Carolina’s ‘Moral Mondays’ Movement

As Washington politicos were applauding themselves on August 28, 2013, and wrapping themselves in the accomplishments of Dr. Martin Luther King and the 1963 March, the real fight for democracy and voters rights was taking place in protests and marches on the same day, August 28, 2013, across 13 cities in North Carolina.

Protestors and demonstrators there have formed their own independent political movement, loosely referred to as the ‘Moral Mondays’ movement. Growing out of the demonstrations in the state capitol eight years ago, grass roots popular resistance has been taking form and growing there for several years.

The recent takeover the state by a right wing governor and legislature, and the passage of a new voter rights suppression law, has energized the grass roots and the movement in North Carolina as never before in recent memory. The Moral Mondays movement now leads the fight for democracy in North Carolina and serves as a model for other similar movements now forming, or about to form, in other states that are also in the ‘cross-hairs’ of the attacks on Democracy in general and voter rights in particular.

The Moral Mondays movement in North Carolina is interesting in that while it is very localized, those local efforts have formed a federated organization. Little known and hardly reported elsewhere in the US, the protestors have engaged in a clever ‘flexible’ occupation of the state capitol that ‘occupy movement advocates’ elsewhere would do well to look into. The loosely federated groups comprising the movement consist of religious organizations, labor organizations, and other community groups, each acting independently but also uniting in common demonstrations and direct actions. They are protesting, sitting in, getting arrested and otherwise engaging in peaceful civil disobedience, proving by action and word they are the true inheritors of Dr. Martin Luther King Jr. and the true spirit of 1963—not the politicians and speakers in Washington at the commemoration on August 28. The ‘Moral Monday’s folks are the real deal. They are currently in the process of electing ‘local city-by-city assemblies’ and reaching out to others elsewhere, and have publicly announced a 14 Point Program.

In short, they have organization, they have strategy and tactics, they have a program that unites them in principle and objectives, and they are politically independent.

Based on this writer’s conversations with some of them, the North Carolina protestors know that the current attack on Democracy and voter rights in their state is about preventing resistance to the economic crisis and austerity measures being imposed on the poor, minorities, workers in that state—and the further austerity measures yet to come. Stop democracy today and you can stop resistance to the measures tomorrow, seems to be the strategy of the right wing governor and legislature in North Carolina.

The attack on Democratic rights there is both political in form and economic in objective, in other words. While draconian suppression of voting rights is taking place in North Carolina, so too is education under attack, with proposals to reduce their pay and jobs. On the employment front, more than 70,000 workers have thus far been denied unemployment insurance in the state and another 100,000 are due the same come January 2014. Meanwhile, politicians raise regressive taxes and end tax credits for lower income families while cutting taxes for corporations and businesses. Education budgets are cut by millions of dollars while vouchers are given to attend private schools. North Carolina is also a state where the governor and legislature refuse to embrace the expansion of Medicaid provided by the 2010 health care act, thus denying countless thousands of necessary health care services.

Readers interested in the 14 Point Program of the North Carolina ‘Moral Mondays’ movement, should go to the movement’s website at HKonJ.com, and see for themselves what the real fight for democracy today looks like—and then compare that to the phony Washington DC politicians and their false promises of maybe doing something some day once they are re-elected again.

Readers are also welcomed to listen to the archived interview by this writer with several leaders of the Moral Mondays movement, which also took place on Wednesday, August 28. That hour long interview is available on the Progressive Radio Network where this writer’s weekly radio show, Alternative Visions, is archived and available for download. Go to alternativevisions.podbean.com for the August 28 interview, or to the archive of the Progressive Radio Network itself.

Dr. Jack Rasmus
August 29, 2013

Dr. Rasmus is the author of the 2012 book, ‘Obama’s Economy: Recovery for the Few’, Pluto Press. He blogs at jackrasmus.com and his website is: http://www.kyklosproductions.com. He is the host of the Alternative Visions radio show on Wednesdays on the progressive radio network. Follow him on twitter at @drjackrasmus.

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The ‘Stop-Go’ US Economic Recovery

Posted in Uncategorized, tagged , , on August 13, 2013| 1 Comment »

For the past several years, the US press, pundits, and apologists for both liberal and conservative politicians in the US have jumped at every slight indication of this or that monthly economic indicator showing improvement. The hype that followed typically declared the ‘recovery was now solidly underway’. That has been the media ‘mantra’ now for the past four years. Each time, the temporary good news was reversed, however, revealing the US economy was not on a trajectory of sustained economic recovery, but instead ‘bouncing along the bottom’, growing at a rate typically half that of recession recoveries in the past.

This summer 2013 has been no exception. Once again the drum beat continues, with press, pundits, and politicians grasping at straws to find the slightest evidence of improvement in the economy, which is subsequently spun to represent the view that a sustained economic recovery has begun. This latest view that once again ‘recovery is underway’ has been bolstered by a major redefinition of Gross Domestic Product (GDP) by the Bureau of Economic Analysis, the US government agency responsible for issuing GDP data, this past July 2013. With a ‘stroke of the pen’, GDP for 2012 was boosted by $559 billion, and the GDP rate of growth for 2012 by almost a third.

But a closer look of the US economy over the past year, July 2012 to July 2013, reveals a longer term trend of the US economy weakening, not growing—and that despite even the recent upward revisions of GDP on paper by the US government’s Bureau of Economic Analysis, BEA.

The US Economy 2012-2013

When GDP for the calendar year 2012 is considered, the US economy grew at a rate of only 2.2%–i.e. about half to two-thirds of what is considered normal growth 39 months after the official end of the recession in June 2009, compared to the 10 prior recessions in the US since 1947. Moreover, even after the revisions to GDP this past month, the US economy grew the last twelve months—between July 2012 and June 2013—at a still weaker 1.4% annual rate.

After a 3.1% growth rate in the third quarter last year, 2012, the economy nearly stalled completely in the subsequent fourth quarter 2012, October-December, when it grew a paltry 0.4%. This was followed in the first quarter 2013 by a 1.1% GDP annual rate and in the most recent 2nd quarter, April-June 2013, by 1.7%. The latter, preliminary GDP estimate, will almost certainly be revised downward to less than 1.7% in subsequent second and third GDP adjustments to come.

It is worth further noting that the very weak, declining, 1.4% rate over the last 12 consecutive months would have been even much lower had special, one-time developments not boosted GDP temporarily in the final two quarters of 2012.

For example, in the 3rd quarter 2012 GDP rose by 3.1%. But the growth was heavily determined by a one time major surge in government spending, largely defense expenditures. Politicians typically concentrate spending before national elections and 2012 was no exception. That one time surge in defense federal spending was clearly an aberration from the longer term government spending trend since 2010, which has been declining since 2011 every quarter. The same pertains to state and local government spending.
The 3rd quarter 2012 defense spending surge reverted back to its longer term trend in the 4th quarter 2012. The economy and GDP then quickly collapsed to a meager 0.4% GDP rate, after being upward revised from a -0.1% actual decline. Whether -0.1% or 0.4%, when averaged with the preceding quarter’s 3.1%, the result was about 1.7%–which has been the average annual growth for the past two and half years.

The 4th quarter would have been even lower were it not for a surge in business spending on equipment in anticipation of a possible tax hike with the ‘fiscal cliff’ negotiations scheduled to conclude on January 1, 2013. But that late 2012 business equipment spending surge also proved temporary as well, flattening out and declining in the first quarter 2013.

Another one-off event then occurred in the 1st quarter 2013: a rise in business inventory expansion, which accounted for a full 1.5% of the total 2.5% of the 1st quarter 2013 GDP (henceforth revised down to 1.8% and again to 1.1%). That one time exceptional event of inventory accumulation subsequently disappeared too in the 2nd quarter 2013.

The 2nd Quarter 2013

During April-June 2013, the US economy grew at a slightly faster 1.7%. That growth was concentrated mostly in the business investment sector of the economy, which was significantly boosted by the GDP definition changes by the BEA that focused primarily on investment changes. Investment rose by 4.6% in the second quarter. How much of that was actual investment, and how much due to government redefinition of investment, remains to be seen. But with the GDP revisions adding $559 billion to 2012 US GDP, it is likely the 2nd quarter 2013 GDP data of 1.7% growth was significantly due to the BEA’s GDP redefinitions.

Consumer spending also contributed to the most recent second quarter’s 1.7% still below-normal growth. Its contribution was driven largely by auto spending and by residential housing construction. But neither housing nor auto consumption appear will continue at prior growth rates going forward into 2013. Here’s why:

Residential housing ‘hit a wall’ in mid-June 2013, in response to Federal Reserve policy announcements and mortgage rates shooting up by more than 1% in a matter of weeks. Since mid-June, home mortgage applications have fallen for seven consecutive weeks and home refinance activity collapsed by 57% to a two year low. It may be that the contribution of residential housing to GDP hereafter will decline sharply, slowing growth in the rest of 2013. Meanwhile, commercial and government construction activity continued its 5 year stagnation and decline.

In terms of auto spending, what was a robust growth in spending on autos appears recently in July to have pulled back sharply. Only truck sales are growing, stimulated by the prior housing expansion which, as noted, may be coming to an end as interest rates almost certainly will rise further in 2013. So truck sales can be expected to slow as well.

The most fundamental, important determinant of consumer spending is wage and income growth, and that continues to decline longer term, as it has for the past four years for all but the wealthiest households. By 2012 wages share of total national income had fallen to a record low of 43.5%, down from 50% in 2000. Thus far in 2013 the decline has continued.

The most important determinant of wage growth—and consumer spending—is employment. But here the picture is not particularly positive, despite all the hype about job creation this year in the US. For the first seven months of 2013, January through July, there were about 900,000 jobs created. That is about the same number of new entrants into the US labor force, which occurs at 150,000 a month. So the economy is just barely absorbing new entrants. However, the real picture is worse in terms of job driven wage growth and consumer spending. About two-thirds of that 900,000 job growth represents part time workers, who receive half pay and no benefits. The US economy is generating low pay, service, part time and temporary jobs. Full time permanent jobs, at higher pay and with benefits, declined since January by more than 250,000. This explains much of the declining wage and income share for working class households despite the modest wage growth. To the extent consumer spending has occurred, that spending appears mostly credit and debt driven.

That leaves business Investment as the major factor in the 2nd quarter 2013 US growth picture and its already weak 1.7% growth rate. However, as previously noted, it is unclear how much of that Investment is real and how much is the result of ‘the redefinition of the meaning and magnitudes of investment activity’ as a result of government changes to GDP definitions this past month.

Two other major segments of the US economy, apart from consumption and investment, are government spending and what’s called ‘net exports’ (exports minus imports). Here the government spending picture is even less positive. Combined federal and state-local government spending continued to decline in the latest quarter, as in preceding quarters. Anticipated additional deficit cutting later in 2013 and another debt ceiling debacle, should it occur, will only add to this sector’s drag on the US economy and counter claims of sustained US economic recovery on the way.

A Scenario for the Remainder of 2013

The factors contributing to US economic growth thus far in 2013 were primarily consumer spending on residential housing and auto sales, and the aforementioned revisions to GDP investment in the second quarter.
Both housing and auto sales now face significant headwinds with rising interest rates, show initial signs of slowing, and therefore are questionable as major contributing factors to further US economic growth for the remainder of the year—especially should interest rates rise once again. Should the US Federal Reserve begins to slow its $85 billion a month money injection, as most market analysts predict will soon happen, US interest rates will rise still further.

That will not only slow consumer spending and investment further, but will raise the value of the US dollar relative to other currencies, subsequently slowing US exports and the latter’s already weak contribution to US GDP in coming months as well.

Rising rates will also dampen business investment, at a time when businesses show little interest in expanding inventories of goods on hand from current lows.

It is worth noting that the mere suggestion of the Federal Reserve reducing its $85 billion a month money injection this past June 2013 provoked a major contraction of financial markets. The US 10 year Treasury bond in real terms rose 1.3% in a matter of a few weeks. That benchmark rate has significant impact not only on housing mortgages but auto sales and other rates negatively impacting consumption and investment. Should the Fed actually start ‘tapering’ its $85 billion in coming months, as is highly likely, that will almost certainly result in a further reaction by financial markets, possibly much worse, and this time perhaps enough to slow consumption, investment and the economy still further.

Added to all this, Government spending continues to be negative force and may even worsen significantly with another round of deficit spending cuts later this year. The very strong likelihood of another fight over the deficit, Obama’s budget due October 1, funding the federal government, and over extending the debt ceiling once again, will have further negative psychological effects on the US economy in coming months.

The US economy may thus, in the immediate months ahead, confront a dual problem of Fed ‘tapering, rising interest rates, more deficit cutting, and a renewed debt ceiling fight with its negative psychological impact similar to that witnessed in 2011 during a similar event.

Finally, unknown ‘tail events’ in the global economy cannot be ignored either. The often heard prospect that the US economy will soon pull the rest of the world onto a sustained growth path is wishful thinking. The Euro economy as a whole continues to ‘bounce along the bottom’, with little or no growth in its northern ‘core’ and continuing depression in its periphery. China appears headed for a hard landing, as its own long term growth rate continues to slow and the potential grows for a real estate bubble bust of major dimensions. Other BRIC economies (Brazil, Russia, etc.) continue to struggle with a 1% average growth rate and are also ‘bouncing along the bottom’. And what was heralded as the new growth sector in the global economy only a few months, Japan’s growth rate has again slowed significantly in the most recent quarter.
In short, the longer term trend indicates the US economy is ‘bumping along the bottom’, growing most likely at no more than 1%-1.5% annually—hardly a rate to cheer about or to claim sustained economic growth has finally arrived. Contrary to the continued hype about a robust ‘snap back’ about to occur in the second half of 2013, there is little sign this will happen. The factors that have been responsible for that weak barely 1% longer term growth rate are themselves showing signs of slowing: housing spending, auto car sales, wages and household income, and government spending. And other major headwinds in terms of fiscal and monetary policies in the US, and in the broader global economy, are emerging on the horizon.

Nevertheless, the US economic recovery ‘spin machine’ continues to grind on—as it has for the past four years—declaring this time will be different and the ‘light at the end of the tunnel’ is real and not just a locomotive coming down the track.

Jack Rasmus, August 2013

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Will the AFL-CIO Restructure to Add Community Groups?

Posted in Uncategorized, tagged , on August 8, 2013| Leave a Comment »

On August 8, my radio show, ALTERNATIVE VISIONS, on the Progressive Radio Network, interviewed 3 long-time union officers and activists (Steve Early, Zach Robinson, Jim Moran) in Richmond, CA, Greenville, North Carolina, and Philadelphia respectively, about AFLCIO President, Richard Trumka’s, announcement that the AFLCIO, the major union federation in the US, was in discussions with national community organizations like the NAACP, La Raza, Sierra Club to discuss allowing membership of community organizations directly into the AFL-CIO. As reported in the US press, the decision on including community organizations as federation members is scheduled for consideration at the upcoming September 2013 convention of the AFL-CIO.

According to a recent article in the July 27 Wall St. Journal, the potential organizational change will include granting community groups “decision making power” within the AFLCIO.

Dr. Jack Rasmus and guests discuss the strategic significance of the possible decision and organizational change at the top level of the AFL-CIO, raising the question: Is this a major shift in the AFL-CIO and American Union Movement that portends greater cooperative action between organized Labor in the US and community groups? Or is it just a fascade for cooperating on lobbying and electing Democrats in the 2014 midterm elections?

American unions are in deep trouble today. In 2012-13, nearly 2 million jobs were created—albeit mostly part time and temp jobs at low pay. But union jobs declined at more than 500,000 in 2012. Weekly earnings of American workers continue to decline yearly. Union defined benefit pensions continue to disappear as businesses convert them to phony 401k plans under the cover of fake corporate bankruptcies. The crisis in Detroit shows the practice is now spreading to the public sector. Union negotiated health insurance plans are under direct attack as well, as Obama’s health care law proposes a ‘tax’ of 40% on such covered plans by 2018 and employers have already launched an offensive to ‘cap’ all contributions to negotiated health plans in anticipation of the tax. Right to work anti-union laws are being pushed at state levels. Union labor may well disappear as we know it in another decade.

Jack’s guests will discuss not only the proposed changes in Union-Community cooperation by the ‘top level’ suggested by the possible changes at the coming AFL-CIO convention, but also developments at the local level in labor-community alliances and action in their geographic areas—in California, North Carolina, and Pennsylvania.

The interviews and discussion, on Dr. Rasmus’ Alternative Visions radio show, may be heard at: http://alternativevisions.podbean.com now. (And subsequently on the Progressive Radio Network, now undergoing server maintenance).

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A Final Note on U.S. GDP Revisions

Posted in Uncategorized, tagged , on August 2, 2013| 3 Comments »

On Wednesday, July 31, the Bureau of Economic Analysis, undertook a major revision of GDP statistics. The result was a major upward revision of GDP numbers for the 2nd quarter and for 2012. While the BEA revises numbers and its methods every five years, this time the revisions were extraordinary and particularly significant.

GDP for 2012, as I pointed out in my prior article, ‘Economic Recovery by Statistical Manipulation’, was raised by almost 33% as a result of the BEA revisions–from the 2.1% annual growth to 2.8%. Moreover, the consensus forecasts by economists for the recent 2nd quarter 2013, which averaged 0.9% according to the Reuters survey, came in at nearly twice that, at 1.7%, due to the revisions. This is not a normal upward revision, most of which made in previous years by the BEA had very little effect on GDP numbers.

Changes made by the BEA to the contribution of investment to GDP were especially important. As I noted in my previous article, nearly all other areas of economic sectors that make up GDP were flat or declining in the 2nd quarter. In other words, the massive upward revision to GDP in the 2nd quarter, as reported by the BEA, appears largely attributable to its revisions to how investment is defined. If how we define investment can have that big an impact on GDP, the changes should not be accepted without challenge.

My article has raised some hackles in some quarters, including among some segments of the ‘liberal left’ that continues to be apologetic for the Obama administration despite its abysmal record economically, in terms of civil rights, wars, concessions to corporations, and so forth for the past five years.

Some among them claim I am arguing there is a ‘conspiracy’ to falsely boost GDP by the Obama administration. But I nowhere raise the charge of conspiracy in my article. Notwithstanding that, those who charge me with such are rather naïve if they think that the BEA bureaucrats, before they reported such numbers, didn’t check it out first with the Obama administration and get its ok. And that it is quite likely there was even more to it than mere reporting of things to come. Who knows for sure. But with what’s going on with data these days in Washington, it’s not realistic to assume the BEA changes had nothing to do with politics. Perhaps not overtly, but tacitly and maybe even covertly.

Much of the increase in investment by the BEA’s redefinition is associated with research and development expenditures by business. The BEA previously considered R&D an ‘expense’. Now it’s an investment. Where does the slippery slope of redefining expenses as investment stop? Obama has proposed in his 2014 budget to significantly increase tax credits to businesses for R&D expenses. That will significantly boost R&D investment. That spending in turn will boost GDP still further in months to come. Does anyone naively think the two developments are completely unrelated? It’s not paranoid to raise the point. Nor is it conspiratorial. It’s just politics, in this day and age when Washington is intent on providing benefit after policy benefit to its corporate friends.

Nevertheless, my critics—some New York left liberal types in particular—insist on defending the BEA and the administration. My insistence that the 33%-50% boost to GDP numbers is not a ‘normal’ revision is dismissed as ‘paranoid’ and ‘conspiracy’ theory. They argue that the changes to investment by the BEA, producing the 33%-50% GDP increase, are reasonable. But are they?

These critics think that adding more than $500 billion to 2012 GDP is normal. They point out that the BEA revisions had little effect on long run GDP since the 1960s. That’s true. But the changes have had a big impact on GDP since the so-called end of the Great Recession in 2009, and especially in the latest 18 months. They are ‘frontloaded’, in other words, having their greatest effect on GDP during the ‘recovery’ period since 2009, during which time it has become clear neither fiscal or monetary policies have done much to generate a sustained economic recovery. So that the 33%-50% boost to GDP in the last 18 months does result in making the failure at recovery appear significantly less so. To point that out is to engage in ‘agitprop’, I’m told.

Critics also pooh pooh my point that gross domestic income, GDI, is rising faster than GDP, even though the likes of Bernanke, chair of the Federal Reserve, does not think the trend is unimportant—as I quoted him in my original article. Something of import is going on here, between gross domestic income (GDI) and gross domestic product (GDP). The historical ratios between the two are changing in the last decade. But why so, we should ask? In reply to my critics, of course incomes from capital gains, dividends, etc. are not directly included in GDP calculations. But the BEA revisions, by increasing investment, do raise corporate profits (as Dean Baker has correctly pointed out, by more than $250 billion in 2012 alone). Corporate profits then get distributed to shareholders in the form of dividends and other capital gains. Raising investment by redefinition raises profits, which raises the distribution of those profits in the form of dividends, capital gains, etc. Ok, that direction of causation is clear.

But should we raise the possibility that the direction may be reversed as well? To explore that point: it is a fact that multinational corporations, for example, now earn on average 25% of their total profits from what is called ‘portfolio investment’—i.e. from financial speculation. Some like General Electric even more. Could it be that corporations are counting more of such profits in the totals reported to the BEA, that then gets reported in GDP-GDI calculations? Doing so might permit them to claim tax reductions on those portfolio profits, just as they do on production profits. So there could be a motive for counting profits from financial speculation as part of GDI, which might explain why BEA corporate profits (and GDI) are running ahead of GDP in recent years. It’s a legitimate question to raise, and doing so is not to suggest ‘conspiracy’ or reflect ‘paranoia’.

There are serious problems with GDP reporting if GDI is somehow rising faster than the value of those goods and services themselves. But critics of my view believe that to raise such questions is to ‘insult their friends at the BEA who are all skilled and honest servants’, as one of my ‘left liberal’ critics puts it in a recent reply to my article.

There are many things wrong with GDP as a measure of how the US economy is doing. But when GDP is revised upward by a stroke of the pen by such a significant amount, we should not be overly defensive of those responsible, or of the politicians who either collude in the process or let it happen.

To say now, as the BEA is saying with its recent GDP revisions, that ‘expenses’ constitute investment is a major shift of definition of GDP. It has resulted in a record upward revision of the numbers, and a slippery slope to further false upward revisions that will follow no doubt. Perhaps the ‘expenses’ incurred in derivatives investing by multinational corporations will soon be considered ‘investment’ in the next round of BEA revisions.

Government data should not be accepted on its face value. We should be challenging it, especially when changes to it are so significant as the case of the recent GDP revisions. Doing so should not critiqued on a personal level, calling those who raise challenges ‘paranoid’ and ‘conspiracy theorists’. That’s just juvenile. We should debating these issues, not polemicizing over them.

Jack Rasmus, August 2, 2013

Jack is the author of the 2012 book, ‘Obama’s Economy: Recovery for the Few’, Pluto Press, and host of the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network. His website is http://www.kyklosproductions.com, and blog, jackrasmus.com. His twitter handle is #drjackrasmus.

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