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Will the AFL-CIO Restructure to Add Community Groups?

August 8, 2013 by jackrasmus

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

August 2, 2013 by jackrasmus

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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‘Postscript’ to: Economic Recovery by Statistical Manipulation

July 31, 2013 by jackrasmus

The following is a follow up, postscript, to the US GDP numbers reported today by the US government. The postscript confirms the analysis of the preceding blog post, ‘Economic Recovery by Statistical Manipulation’.

‘Postscript’ to ‘Economic Recovery by Statistical Manipulation’

My recent article, ‘Economic Recovery by Statistical Manipulation’, written July 29, 2013, forewarned that revisions to US GDP data due on July 31 for the April-June quarter would likely show a larger GDP and growth for the US for the quarter, as well as for earlier years. GDP data published today, July 31, 2013 by the US government’s Bureau of Economic Analysis (BEA) have confirmed that prediction.

A poll of dozens of economists by the Reuters international news agency prior to the 2nd quarter GDP data release showed professional economists were collectively forecasting no more than 1% GDP growth for the 2nd quarter. As noted in our previous article, some were forecasting GDP as low as 0.5% for the quarter. The BEA’s GDP first estimate for the 2nd quarter indicates a 1.7% GDP growth. What happened to explain such a great divergence from forecasts and the BEA data?

As Reuters notes, in a follow up to the BEA release, “comprehensive revisions to the data cast the economy in a better light than previously.” Not only has the most recent quarter of GDP been boosted, from 1.1% in the first quarter of 2013 to 1.7% now in the second (compared to forecasts of 1%), but GDP for all of calendar 2012 has been revised upward as well, from the prior official 2.1% to 2.8%. That’s a 33% upward revision.

Today’s GDP revisions—which will continue henceforth to boost future GDP numbers—focus largely on boosting the contribution of business investment to GDP. The revisions have resulted in significant increases in the estimates for business investment and will continue to do so in the future. It is not necessary to bother readers with the arcane details; suffice to say that the boosts to investment totals have to do with changes in how depreciation is calculated, pension accounting, and other items. The changes in depreciation in particular have resulted in GDP upward revision.

GDP is part of what’s called the ‘National Income Accounts’. Like all accounting, there are two sides to the ledger. GDP measures the value of goods and services produced in the economy; the other side of the accounting ledger is GDI, or gross domestic income, which measures the corresponding income generated from that production. That means that the upward revision based on depreciation-driven business investment translates into an upward revision of business income in GDI.

As economist, Dean Baker, has noted in his commentary on the revisions today, “The new measure added $250 billion to depreciation in the corporate sector for 2012” and that “the profit share of net corporate output (as percent of GDP) rose to 25.5 percent in 2012, the fourth highest share in the post-war era.”

A closer inspection of the 1.7% US 2nd quarter GDP number shows almost all of the major gains in the economy came from business investment. There are four major ‘areas’ of GDP: government spending, exports in excess of imports, consumer spending, and business investment.

The Reuters commentary on today’s GDP release indicated that consumer spending (70% of the US GDP) slowed in the second quarter significantly from the first. So it doesn’t explain the 1.7% unexpected GDP rise. Similarly, government spending (typically 24% of the economy) contracted for the third straight quarter. So nothing there to justify the 1.7%. Exports rose, but imports rose faster, which translates to a negative contribution to GDP. It was mostly “a turnaround in investment in nonresidential structures and gains in outlays on equipment and intellectual products”, according to Reuters, which explains the 1.7%.

Not surprisingly, that’s the precise area in which the GDP upward revisions have been focused.

Change the way depreciation is defined, adding to corporate profits in addition to the already record growth for profits, throw in new categories of what constitutes business investment—and now you have a 30% or more higher GDP.

If you can’t generate a sustained real economic recovery for five years with past and current economic policies—then just redefine the definition of recovery itself.

Jack Rasmus
Copyright July 31, 2013

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Economic Recovery by Statistical Manipulation

July 30, 2013 by jackrasmus

Tomorrow, Wednesday July 31, 2013, the US government will release its data for US GDP for second quarter, April-June. As part of the release, it will redefine GDP and upward revise GDP results going back to 1929. It will make GDP appear larger than it really is. Read the following analysis for how and why the changes are being made, and the consequences for fiscal and monetary policies in upcoming months.

“Facing the prospect of a 2nd quarter GDP report showing economic growth less than 1% (some professional forecasting services predict as low as 0.5%), and a year to year growth of the US economy likely to come in at barely 1%–compared to a 2011-12 already tepid 1.7%–the Obama administration on Wednesday, July 31, will announce a major revision of how it calculates GDP which will bump up GDP numbers by as much as 3% according to some estimates. That’s one way to make it appear the US economy is finally recovering again, when all other fiscal-monetary policies since 2009 have actually failed to produce a sustained recovery.

Wednesday’s GDP definition revisions is not the first time that politicians, failing in their policies, have simply rewritten the numbers to make the failure ‘go away’. But this time, the GDP revisions will be made going all the way back to 1929. So watch for the slowing US economy GDP numbers from last October 2012 onward to be significantly revised upward.

Instead of an actual, paltry 0.4% GDP growth rate in the fourth quarter of 2012, a weak 1.6% in the first quarter 2013, and the projected 0.5%-1% for the 2nd quarter 2013—all the numbers will be revised higher in the coming GDP estimate for the 2nd quarter 2013. The true GDP growth rate of the most recent April-June 2013 period, projected as low as 0.5% by some professional macroeconmic forecasters, might not thus get reported.

President Bill Clinton played fast and loose with economic statistics as well at the end of his term, redefining who was uninsured in terms of health care coverage. The total of 50 million uninsured at the end of the 1990s, was reduced to 40 million—after having risen by ten million during his eight years in office. Today, they still claim there are only 50 million without health insurance coverage, despite the ten million more becoming unemployed since the Great Recession began in 2007, tens of millions of population increase in the US, and millions more having left the labor force.

Similarly, under President Reagan in the 1980s a raft of government statistics were ‘revised’. Unemployment in particular was revised downward by various means to make it appear fewer were jobless in the wake of the 1981-82 recession. Changes were made to inflation data as well to make it appear lower than it was, and to how manufacturing was defined to make it appear that the mass exodus of manufacturing ‘offshoring’ of jobs was not as great as it was in fact.

This writer has been forewarning of this radical shift in GDP definition since earlier this year, in a series of analyses on US GDP numbers over the past year, July 2012-June 2013, in which the warning was raised the US economy was slowing significantly—from its already weak historical 2011-2012 annual growth rates of less than 2% to around half at 1% (see my blog entries at jackrasmus.com). The point was raised the Obama administration appears may use the 5 year scheduled GDP revisions to boost the appearance of the slowing US economy.

The government agency, the Bureau of Economic Analysis, responsible for the GDP numbers will explain the GDP methodology changes this week, and this writer will provide a follow up analysis of the revisions. Some initial indications have appeared in the business press as to how and why the changes are being made in GDP.

One explanation is that Gross Domestic Income (GDI) has been running well ahead of GDP (Gross Domestic Product). GDP is supposed to measure the value of goods and services produced in the US, while GDI is a measure of the income generated in the US. They are supposed to be about equal, with some adjustments for capital consumption and foreign net income flows. The idea is whatever is produced in terms of goods and services generates a roughly equivalent income. However, it appears income (GDI) is rising faster than GDP output. The BEA revisions therefore appear aimed at raising GDP to the higher GDI levels.

But income is rising faster because investors, wealthy households (2%), and their corporations are increasing their income at an accelerating pace from financial securities investments—that don’t show up in GDP calculations which consider only production of real goods and services and exclude financial securities income like stocks, bonds, and derivatives. So instead of adjusting GDI downward, the BEA will raise GDP. It appears from early press indications it will do this by reducing deductions from GDP due to research and development and by now counting some kinds of financial investments as GDP.

When GDP was developed back in the 1930s, economists purposely left out financial assets’ price appreciation in the determination of GDP. Such assets did not reflect real production of goods and services, it was determined. But today in the 21st century, massive gains in capital incomes increasingly come from financial asset appreciation. Even many non-financial corporations now accumulate up to 25% of their total profits from what are called ‘portfolio investments’—i.e. financial asset speculation. Like profits from real production, that gets distributed to shareholders in the form of capital gains, dividends, stock buybacks, etc. That corporate profits and other forms of non-corporate business income also ends up in reported ‘Gross Domestic Income’, or GDI. As GDI rises in relation to GDP, the government’s answer is to conveniently revise GDP upward to better track GDI. But that doesn’t represent real economic growth and does represent a false recovery when measured in terms of new GDP revisions.

If GDP is revised upward, a host of other government data will have to revise up as well. That will likely include employment numbers as well. How reliable will be future jobs numbers, not just GDP numbers, is therefore a reasonable question.

Apart from making it appear the US economy is doing better than it in fact is, what are the motivations for the forthcoming redefinition of GDP, one should ask?

For one thing, it will make it appear that US federal spending as a share of GDP is less than it is and that US federal debt as a share of GDP is less than it is. That adds ammunition to the Obama administration as it heads into a major confrontation with the US House of Representatives, controlled by radical Republicans, over the coming 2014 budget and debt ceiling negotiations again in a couple of months. It also will assist the joint Obama-US House effort to cut corporate taxes by hundreds of billions of dollars more, as legislation for the same now moves rapidly through Congress in time for the budget-debt ceiling negotiations.

Revising GDP also enables the Federal Reserve to justify its plans to slow its $85 billion a month liquidity injections (quantitative easing, QE) into the banks and private investors. This ‘tapering’ was raised as a possibility last June, and set off a firestorm of financial asset price declines in a matter of days, forcing the Fed to quickly retreat. But the Fed and global bankers know QE is starting to destabilize the global economy in serious ways and both, along with the Obama administration, are looking for ways to slow and ‘taper’ its magnitude—i.e. slow the $85 billion. Redefining GDP upward, along with upward revisions to jobs in coming months, will allow the Fed to revisit ‘tapering’ after September, when the budget-debt ceiling-corporate tax cut deals are concluded between Obama and the US House Republicans. (see my lengthy article, ‘Austerity American Style’ , on this).

The Fed has stated it will begin to reduce its QE when the economy shows more growth and unemployment numbers come down to 6.5%, from the current roughly 7.5% low-ball estimate. (Other government data show unemployment at more than 14%, but politicians and the press ignore that number). Revising GDP upward will thus provide the Fed with an argument to start ‘tapering’. Fed Chairman, Ben Bernanke, is quite aware of the usefulness of the projected revisions, moreover. In his recent testimony to Congress he specifically noted that the economy was growing better than (old) GDP numbers indicate if the higher Gross Domestic Income (GDI) is considered.
It is ironic somewhat that what we are about to witness with the GDP revisions is a recognition that the economic recovery since 2009 has been a recovery for corporate profits and capital incomes, stock and bond markets, derivatives and other forms of income from financial speculation—all now at record levels—while weekly earnings for the rest continue to decline for the past four years. What the GDP revisions reflect is an attempt to adjust upward GDP to reflect in various ways the gains on financial side of the economy, the gains in income for the few and their corporations.

When you can’t get the economy going otherwise, just change the definitions and how you calculate it all. Manipulate the statistics—just as Clinton did before and Reagan even before that.

Dr. Jack Rasmus
July 29, 2013

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

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Obama’s Speaking Tour: More ‘Talk the Talk’ Again

July 22, 2013 by jackrasmus

This coming week and next, President Obama is reportedly planning to make a series of speeches on the economy. The deeper purpose of his coming speaking tour, however, is to stake out his position for the upcoming budget and deficit cutting battle that this writer has been predicting will occur within the next few months, as both the new budget year begins October 1 and a new ‘debt ceiling’ extension deadline concurrently approaches .

The hiatus in deficit cutting—aka ‘Austerity American Style’—that has characterized recent month is now coming to an end. A new round of austerity negotiations between the administration and radical conservatives in the US House of Representatives is about to begin. (For a deeper analysis, see this writer’s recent article entitled ‘Austerity American Style’ in the July issue of Against the Current magazine, as well as on the blog, jackrasmus.com).

Obama’s new Treasury Secretary, Jack Lew, provided the administration’s first ‘shot across the bow’ last week, announcing that the administration would not tolerate another ‘debt ceiling crisis’ in the coming months like that which occurred in August 2011. Once again, as in the past, House Republicans simply shrugged, having recently cut food stamps for millions and engineering a phony agreement on student debt interest payments.

In the first August 2011 debt ceiling fight, the crisis was ‘resolved’ by the Obama administration agreeing to cut $2.2 trillion in spending-only—$1 trillion of which took immediate effect and another $1.2 trillion implemented this past March 2013 in the form of the ‘sequester’ spending-only cuts. In between the two $1 trillion and $1.2 trillion in spending cut events, Obama agreed to raise personal income taxes a mere $.6 trillion on just the wealthiest 0.7% households instead of on the wealthiest 2% he promised during the 2012 elections.

As part of the token $.6 trillion in tax hikes for the wealthiest 0.7%, Obama agreed to eliminate the Alternative Minimum Tax altogether and to reduce the Inheritance Tax even more than under George W. Bush. The $.6 trillion, or $60 billion a year, tax hike on the super-wealthy will thus prove over the coming decade to be no more than a ‘smoke and mirrors’ increase in the personal income tax on the wealthy—with additional massive tax cuts still to come for the wealthy and their corporations forthcoming with the Tax Code overhaul now working its way through Congress.

To date the total deficit reduction therefore amounts to $2.8 trillion. That leaves a remaining $1.6 trillion in deficit reduction to go in order to reach Obama’s original Simpson-Bowles 2010 Deficit Commission’s recommendations of $4.4 trillion in deficit reduction for the next decade.
However, this past March Obama’s 2014 initial budget proposed to cut another $630 billion in Social Security and Medicare, thereby raising the total in deficit reduction enacted or conceded by the administration to $3.4 trillion. Safely assuming at least that much will occur in further social security and medicare spending reduction, that leaves about $1 trillion minimum in still further cuts to be negotiated in the renewed deficit debates that will soon unfold in the next few months.

As this writer argued in numerous blog entries the past seven months, the temporary hiatus in deficit cutting occurred as both parties—House Republican radicals and Obama and Senate Democrats—await the historic tax code change legislation now working its way on a fast track through the House Ways & Means Committee.

That tax code bill will include massive additional cuts in corporate income taxes, especially in the top corporate tax rate and in taxing of multinational corporations, who are currently hoarding $1.9 trillion in cash in their foreign subsidiaries in order to avoid paying corporate taxes. Corporations want—and Obama agreed during the recent national elections—to reduce their top corporate rate from 35% to 28% or less. They argue that the 35% rate is the highest among advanced economies. What they don’t say, and the press conveniently ignores repeatedly, is that US corporations’ actual effective rate is a mere 12% of total profits—i.e. the lowest among advanced economies. Or that that 12% rate is about half that which they previously annually paid between 1989-2008.

Notwithstanding all that, both Obama and the House radicals will agree on a massive tax code change in the coming months that will include hundreds of billions more in tax cuts for Corporate America. That in turn will mean that more than $1 trillion ($4.4 Simpson-Bowles target minus $3.4 spending cuts to date) will be demanded by House Republicans. That means more than Obama’s already proposed $630 billion in social security-medicare cuts will be on the bargaining table, and that significant middle class tax hikes will be as well.

More spending cuts and middle income tax hikes are thus on the agenda. They will come at a time that the US economy is clearly faltering once again and the global economy continues to weaken even more as well.
Contrary to the continuing media hype since the beginning of 2013, the US economy has been slowing significantly over the past year, growing on average less than 1% annually when special, one time effects like a pre-election defense spending surge last July-September, and a similar one time inventory spending blip January-March 2013, are backed out of US GDP results this past year.

In the next few weeks, 2nd Quarter GDP results will show an economy growing at less than 1%, as this writer forecast last May. (See ‘Predicting the US and Global Economy’, Z Magazine, July 2013, and in previous blog analyses of US GDP trends over the past year.)

US Federal Reserve missteps this past June 2013, attempting prematurely to reduce the $85 billion in monthly free money injections to banks, investors and stock-bond market speculators resulted in mortgage interest rates rising by more than 1% in just a matter of weeks, bringing the very fragile US housing sector recent recovery to a virtual halt. And despite the Fed turning on the free money spigot in July once again, banks will almost certainly keep mortgage interest rates at the higher rate, thus ensuring a further slowdown in residential housing that stalled last month and the continuing depression in commercial construction that has been the rule since 2009.

Meanwhile, US manufacturing and exports continue to follow the global downward trend, and household consumer income continues to decline in real terms, now showing up once more in stagnating retail sales. The much-hyped recent US job creation is, upon deeper inspection of trends, almost totally part time and temporary jobs since January 2013. Of the approximate 750,000 new jobs created, more than 550,000 were part time (and at least another 100,000 temp jobs)—all of which mean low paid and no benefits. Over the same period, more than 240,000 full time jobs were eliminated. Not surprising, recent studies show that 60% of jobs lost since the recession have been high paid (over $18hr) while 58% of the jobs created have been low paid (less than $13.hr.). No wonder union membership (higher paying jobs) fell by 500,000 the past year as several million low quality jobs have been created.

On the business front, as recent data shows, business spending on inventories continues to decline sharply, fixed investment is diverted to offshore or to financial securities speculation, and corporations’ multi-trillion dollar cash hoard is spent on dividend payouts to stockholders, stock buybacks to raise stock prices to still further record levels, or diverted to overseas subsidiaries to avoid paying US taxes.

In this context of slowing US economy across the board, the Obama administration and House Republican radicals again approach another round of deficit spending cuts and still more tax cuts for the rich and their corporations. Social Security, Medicare, Medicaid and Education cuts will be high on the agenda, as well as ‘broadening’ the tax base—i.e. tax hikes on middle class households. As Obamacare appears to encounter increasing problems of implementation, and the administration itself begins to retreat on its implementation, renewed efforts by House Radicals to dismantle it piece by piece will no doubt intensify and become a major item of further spending cuts as well in upcoming deficit negotiations.

As this writer has argued the past 18 months, another major round of deficit spending cuts in the US and/or banking crisis in Europe will all but ensure the US descent into a double dip recession in 2013-14. And as recent Federal Reserve attempts to ‘taper’ the $85 billion free money injection show, an emerging third factor potentially precipitating another recession could be a renewed effort by the Federal Reserve after September 2013 once again to try to withdraw the free money ‘cocaine’ to which bankers and investors appear now increasingly addicted.

Anyone who believes the US economy is about to enjoy a sustained recovery had better think again, and look to the real details and not the hype about the US economy by media and politicians. They had better prepare for a deeper attack on social security, medicare, and education spending in the coming months. They had better resurrect the fight for ‘medicare for all’ as the only solution as Obamacare continues to unravel by 2016, or else accept the inevitability of Republican radicals’ drive for full privatization of healthcare, vouchers, and health services rationing for all but the wealthy. They had better make up their minds if they want a ‘new normal’ economy with only part time and temp low paid jobs and declining real incomes for the vast majority of households, while the wealthy continue to reap ever higher incomes from continuing record gains in stocks, bonds, and other financial investments.

In his forthcoming speeches and tour, Obama will talk in generalities about helping the middle class, inadequate incomes, hype up false job gains, refer to what is a fictitious housing recovery, brag about declining government deficits, and tell us how he won’t tolerate another debt ceiling debacle. But we’ve heard the same talk now for five years. Yes, the Republican House is much to blame for the continuing stagnation of the US economy and the falling incomes and wages for all but the wealthiest households. But so too is Obama and the Democrats, having backed off and conceded time and again to House Republicans’ retrograde demands and policies—too often making concessions unilaterally to appease conservatives and radicals. Expect more of the same, notwithstanding the optimistic ‘speech-talk’ that Obama will soon deliver yet again, as a prelude to his concessions once again that will undoubtedly follow.

We’ve seen his ‘talk and no walk’ scenario now several times since 2008. There’s no reason to assume the ‘leopard will change his spots’, so to speak. To continue the metaphor, the latest leap from his tree to snatch a small piece of political prey will result in abandoning the opportunity once again when challenged, scurrying back to a safe place out on some limb.

Meanwhile, the US economy slips slowly further toward the precipice of recession in 2013-14. Should that happen in 2014, another mid-term election fiasco for Democrats will likely follow next November 2014. It is quite possible, and increasingly so, given that far more Democrats are up for election in the next round that Democrats will lose control of the Senate. Then the real attack on the middle class, retirees, unions, healthcare, education, and workers in general will begin that will make recent events since 2010 pale in comparison.

As in the fall of 2010, this fall, 2013, represents a key juncture in economic and political events that will have implications for years to come. Obama’s adoption of corporate-driven policies in the summer of 2010, especially on the jobs and housing front, led to his major defeat in the 2010 midterms, resulting in losing control of the House of Representatives with consequences we have been experiencing ever since in terms of austerity for the majority in the US amidst record gains in incomes for the rich and corporate profits. A similar historical repeat may occur in the coming months, with a consequent loss of the Senate and even worse consequences.

If so, it will prove conclusively that the only way out of the continuing crisis is independent political action and new forms of national and local political organization.

Jack Rasmus,
July 22, 2013

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

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On Fed Chairman Bernanke’s Testimony to Congress

July 19, 2013 by jackrasmus

 

On Fed Chairman Bernanke’s Testimony to Congress

July 19, 2013 by jackrasmus

Federal Reserve Chairman, Ben Bernanke, testified to both houses of Congress this week. The focus was his plan concerning continuing current Quantitative Easing (QE 3) policies, or to begin ‘tapering’ (reducing) the $85 billion a month of printed money injection into the financial system and prospects for continued low interest rates.

Dr. Rasmus was interviewed by the Voice of Russia radio on friday, July 19, to provide his analysis of what Bernanke said.

Dr. Rasmus noted his analysis of Bernanke’s testimony confirms his predictions of March 2012 (see his blog, March 2012, entry at jackrasmus.com, ‘Are Capitalists Addicted to Central Bank Free Money’), which maintain that financial investors (banks, shadow banks, investors) have become increasingly addicted to free money from the Fed.

In the interview with Russia Radio, Dr. Rasmus notes that just a month ago, in June, Bernanke suggested that QE 3 purchases by the FED may have to be slowed at some point in the future. The response of investors to just the prospect of ending the free money (QE3) was to set off a near panic in stocks, bonds, and other financial asset prices. Financial asset prices fell across the board rapidly, and interest rates in turn rose across nearly all asset classes by a percent or more in just a matter of weeks.

In response to the possibility of a more sustained financial asset price collapse, Federal Reserve governors, colleagues of Bernanke at the Fed, quickly reassured financial markets within days that the Fed was not going to reduce the $85 billion, as Bernanke implied in June.

Markets quickly again turned around, surging to new highs in July. As Dr. Rasmus pointed out in the interview, Bernanke confirmed his Board of Governors’ statements in recent weeks, in his own testimony to Congress this past week.

In response, financial bubbles continue to move ahead once again as a result of Fed and other central banks’ continuation of free money policies for bankers and investors. The same policies in turn are becoming increasingly ineffective in stimulating the real economy, while provoking bubbles on the financial side. It is a situation that cannot be sustained, argues Rasmus in the interview. As he notes: at some point the Fed will once again have to confront the prospect of reducing QE and raising interest rates. That will likely provoke another asset price contraction of major proportions, as occurred in June, at some future date and result in turn in an additional negative impact on the real economy in the US and globally, with Europe already stagnating in recession and depression in the periphery, China growth rates slowing significantly, and the US GDP growth slowing to less than 1% in the most recent April-June 2013 period(as forthcoming GDP figures will soon reveal).

The central policy tool–monetary policies of QE and near zero interest rates–of US and global capitalist policy makers is running out of steam and becoming more counter-productive by the month. Meanwhile, degrees of austerity fiscal policies in the US and EU continue. The prospect for future US and global economic recovery is growing increasingly questionable.

FOR THE FULL INTERVIEW WITH RUSSIA RADIO, click on the following url:

http://voicerussia.com/radio_broadcast/61124198/118222702.html

 

Dr. Jack Rasmus,

‘Shadow’ Chairman for the FED, Green Shadow Cabinet

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Is Obamacare About to Unwind?

July 10, 2013 by jackrasmus

Listen to Jack Rasmus’ archived radio show, Alternative Visions, for wednesday, July 10, on the Progressive Radio Network, for an analysis of the Obama administration’s decision last week to extend the mandate for employer participation in the new health care law for another year, until January 2015.

A more comprehensive analysis follows, addressing the growing problems with implementation of the Affordable Care Act, ACA (Obamacare), including growing indications employers are preparing to convert full time workers to part time status to avoid the law; states continue to opt out of providing additional Medicaid coverage per the law; 34 states still refuse to implement health insurance exchanges; why health insurance premiums for both the working poor and middle income households will be unaffordable despite government partial subsidies; why health insurance premiums for healthy subscribers in the exchanges will double compared to their present coverage; why the long term care (nursing home) exemption from the law is now resulting in doubling of premiums; why the 40% excise tax on union negotiated employer health insurance by 2018 will result in escalating premiums and costs now; cuts in payments to safety net hospitals; and other elements.

Jack points out the historical connections between Obamacare, George W Bush’s health savings accounts (HSAs) pure privatization program, and Clinton’s ‘managed care’ and the 1990s anti-trust exemptions for the health care industry that set off runaway health care inflation.

Jack argues Obamacare will implode circa 2015-16, leaving a return to the fight over full privatization of health care (voucher system) advocated by corporations and conservatives vs. the only long term true solution of ‘Medicare for All’.

To listen or download the Alternative Visions show of 7-10-13, go to:

http://prn.fm/shows/political-shows/alternative-visions/#axzz2YfBZ92HF

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Austerity American Style

July 9, 2013 by jackrasmus

This writer has recently had published an 8,000 word pamphlet, ‘Austerity American Style’, that expands in depth on prior posts on this blog on ‘Obama’s Budget’ , sequestration, and fiscal cliff. The article-pamphlet provides a summary of deficit cutting in the USA, aka ‘Austerity American Style’, since 2010 and predicts further upcoming austerity measures in the US later this year, including cuts in social security, medicare, tax hikes on the middle class, and massive tax cuts for corporations as part of the deal. The pamphlet concludes with recommendations for independent political action, including formation of nationwide ‘social security defense clubs’ and a march on Washington DC to protest and stop the measures. For the full length pamphlet-article, go to the author’s website at:

http://www.kyklosproductions.com/articles.html.

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Analysis Underlying ‘Predicting the US and Global Economy, 2013-14’

July 8, 2013 by jackrasmus

For a detailed sector-by-sector and GDP analysis of the US economy, that provides the basis for the ‘predictions’ for the US and global economy posted on this blog in June, go to Jack Rasmus’s website for the full feature article as it appears in the July issue of ‘Z’ magazine.

Access the website from the sidebar on this blog (below the book icons), or directly from: http://www.kyklosproductions.com/articles.html.

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Predicting the US and Global Economy, 2013-14′ by Dr. Jack Rasmus

June 16, 2013 by jackrasmus

Annually for the past three years this writer has made leading edge predictions about the trajectory of the US and global economies for the 12-18 months to come. The last previous set of predictions appeared in the January 2012 issue of ‘Z’ magazine. Eighteen months later, it appears most have materialized. The following briefly summarizes those prior predictions, and makes further predictions for the next 18 months, through December 2014:

I. Review of January 2012 Predictions

1. The forecast that the US would enter a double dip recession around late 2013 or 2014 is yet to be determined. However, the US and global economies both appear to be slowing significantly (see my blog piece ‘US GDP Longer Term Trend Analysis’), while China, the BRICS, and in particular Europe all are slowing even faster. Japan has engaged in a desperate and risky monetary stimulus that will fail in the longer term. Simultaneously, financial instability worldwide grows as asset bubbles peak and begin to deflate.

2. It was also predicted in the January 2012 issue that the US Federal Reserve would introduce a third version of its QE program. That prediction was realized, with the Fed introducing an open ended $85 billion a month liquidity injection.

3. A third previous prediction in January 2018 was that deficit cutting would begin again in ‘great earnest’ immediately following the November 2012 elections. That of course also happened, with fiscal cliff, sequestration, and all the rest.

4. In 2012 it was predicted Social security and Medicare spending would be cut a minimum $700 billion, based on what Obama had proposed in the summer of 2011, but backloaded into later years of the coming decade. That is yet to be determined, but appears likely as Obama’s 2012 budget again called for $700 billion in such cuts.

5. Two predictions in January 2012 did not prove accurate: that home prices would continue to fall and foreclosures rise. Single family home prices began to rise slowly in late 2012, albeit only one fourth of the original decline. More than 1.1 million new foreclosures were added to the roughly 14 million total to date in 2013

6. In the January 2012 predictions, it was forecast that US manufacturing and exports would slow in late 2012, which did, and the minimal job growth in manufacturing would level off and decline, which also has occurred.

7. Prior predictions forecast that jobs recovery would undergo a series of ‘false starts’ determined by seasonal and other statistical factors. The result would be little net reduction in total unemployment. This proved partially true: some jobs were created, but more workers than expected left the labor force entirely. The previous prediction of 24 million jobless compares to today’s official 21 million jobless. But the numbers are largely the same if one considers the 4-5 million ‘jobless’ who left the labor force altogether. As a related new prediction: There will be still be no sustained recovery of jobs over the coming year. Jobs will continue to ‘churn’, with high wage replaced with low wage, full time with part time/temp, current workers with jobs leaving the labor force and new entrants and lower pay taking their jobs, etc.

8. Past predictions were more accurate with regard to the global economy. It was predicted the Eurozone sovereign debt crisis would stabilize, then worsen again. The temporary stabilization occurred in the late summer of 2012. The worsening once again is pending. It was also predicted two or more Euro banks would fail. More than that failed in the periphery of the Eurozone alone, with others in Belgium, Netherlands and elsewhere.

9. It was predicted both France and Germany would enter recession in 2012 and the UK experience a double dip—all of which occurred.

10. It was predicted that global trade would slow and begin to contract in 2012—a prediction that also proved correct.
The following constitute this writer’s predictions for the US and global economies in the coming 18 months. (For a more detailed explanation of why these predictions, see the July issue of ‘Z’ magazine, and this writers article “Predicting the US and Global Economy”. This article will be posted on the writer’s website, http://www.kyklosproductions.com/articles, in late July. See also the writer’s weekly radio show on the Progressive Radio Network, ‘Alternative Visions’, archived on Wednesday, June 12, 2013, for an audio explanation of the bases for the predictions).

Economic Predictions: 2013-2014

1. The U.S. will enter a double dip recession around late 2013 or 2014, providing both of the following occur: that either U.S. policymakers continue deficit cutting and a more severe banking crisis erupts in Europe. Either event may be sufficient to precipitate recession. Both most certainly will.

2. The Fed will begin reducing its $85 billion a month liquidity injection significantly within the next 12 months. Monetary retraction will severely disrupt both stock and bond markets. A major stock market correction will ensue and may have already begun at this writing. The additional financial markets at greatest risk are corporate junk bonds, real estate investment trusts, and money market funds.

3. There will be yet another round of deficit cutting later in 2013 and it will be associated with a major revision of the U.S. tax code. That tax code change will include a big reduction in corporate tax rates, from the current 35 percent to somewhere around 28 percent, perhaps phased in over time. Multinational corporations will also get a sweet deal on their $1.9 trillion offshore cash hoard, paying less in the end than their legally required 35 percent rate. R&D tax credits and other depreciation acceleration tax cuts will also occur as part of the deal.

4. In the next round of deficit cutting, Social security and Medicare spending will be cut a minimum of $700 billion—already proposed in Obama’s 2014 budget—and perhaps much more.

5. The much-touted current housing recovery will stall and single home price increases will slow and perhaps even level off. (More than 1.1 million new foreclosures were added to the roughly 14 million total to date in 2013.) Housing will bounce along the bottom much like other sectors of the economy. Institutional speculators will continue to drive the market and once again convert it into a speculators dream, different in form from the subprime fiasco but similar in content.

6. Manufacturing and U.S. exports will slow still further, drifting in and out of negative growth as the global economy and world trade continues to contract further.

7. There will be still be no sustained recovery of jobs over the coming year (today’s official jobless is 21 million). High wage jobs will be replaced with low wage, full-time with part-time/temp, current workers with jobs leaving the labor force, and new lower paid entrants taking their jobs.

8. The current negotiations between the Obama administration and Pacific Rim countries to create a Trans Pacific Partnership (TPP)—NAFTA on steroids—will be concluded, but will not pass Senate approval until after 2014, or take effect until 2017.

9. With regard to the global economy, the Eurozone sovereign debt crisis will again worsen and the banking system grow more unstable. Austerity policy will focus more on direct attack on wages and benefits.

10. More economies in the Eurozone will slip into recession, including Denmark and perhaps Sweden. France’s recession will deepen. Germany will block the formation of a bona fide central bank in the Eurozone and the UK will vote to leave the European Union.

11. China growth rate will continue to drift lower and it will be forced to devalue its currency, the Yuan, as Japan and other currencies are driven lower at its expense by QE policies. A global currency war, now underway, will intensify.

12. Gobal trade will continue to decline.

13. Japan’s risky experiment with massive QE and modest fiscal stimulus will prove disastrous to the global economy, resulting in still more speculative excess and financial instability. Japan’s stock and asset markets will benefit in the short run, but not the rest of the economy in the longer run.

14. Capitalist economies worldwide will converge around QE monetary policies, more modest deficit spending cuts, and a more focused attack directly on workers wages and especially social benefits like pensions, healthcare services and the like—i.e. the U.S. formula. The consequence will be more income inequality worldwide and no noticeable positive impact on economic growth. The next financial crisis event may not come in the form of a crash of a particular market, but in the form of a grinding slow stagnation of markets in general. With general stagnation of the real economy, a slow drift into no growth scenarios is a distinct possibility.

Jack Rasmus
June 15, 2013

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

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