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AMERICA’S TEN CRISES: Part 3: (An Imploding Employer-Provided Health Insurance System)

July 3, 2012 by jackrasmus

COMMENTARY: THE FOLLOWING IS THE THIRD IN A SERIES OF TEN ‘CRISES’ CONFRONTING THE U.S. ECONOMY OVER THE LONGER TERM.

The U.S. spends today more than 17%% of its GDP on health care—more than $2.7 trillion and rapidly rising. That is nearly double that paid by other advanced economies that typically pay 10% of their GDP for health care—health care services that are also generally superior in quality than that received by the average American. That $2.7 trillion means the U.S. wastes more than $1 trillion every year on ‘middle men’ in its privately insured system—i.e. an excess $1 trillion that accrues mostly to insurance companies and other ‘paper pushers’ that don’t deliver one iota of patient health care services.

The fundamental causes of runaway health care costs in the U.S.—costs that are undermining economic growth long-term in the U.S.—are not overuse of healthcare services by the vast majority of Americans. The health care cost run-up for two decades now is a direct result of government tax subsidized corporate mergers and acquisitions among health insurance companies, government price-subsidization of drug companies, and tax-encouraged for-profit hospital industry concentration—all three of which today drive health care costs all along the health care services supply chain.

Government policies for decades now have encouraged monopolization in the industry that is the fundamental force driving health care costs. Health insurance companies once earned 5% returns, distributing 95% of every dollar to pay for health services. They now earn 22% returns, distributing only 78%, with much of the difference paid to obtain Wall St. for loans for health insurers and for-profit hospital chains with which to buy up their competitors. Government has aided and abetted health industry concentration, and thus monopolization and runaway prices, since the Clinton administration with its policy of exemption of health insurance companies from anti-trust laws and tax incentives that encourage industry concentration.

As health costs have escalated for more than two decades now, the solution of politicians to the growing cost crisis has been to ‘socialize’ more of the costs of health care while privatizing more of the benefits. Working and middle class Americans have been required to pay more and more of the total cost of private employer health insurance and/or receive less coverage, or have been forced simply to go without coverage. Health care costs for retired Americans with Medicare have been increasingly ‘socialized’ as well: Part B Medicare doctor costs are paid increasingly out of government general budgets and Part D prescription drugs totally out of such budgets. Medicaid costs similarly come out of government budgets. However, this system of perverse ‘socialization of costs’ has reached its limits as health care cost escalation has become unsustainable. Other ways are therefore now being considered to continue the health care cost inflation benefiting companies’ and investors’ profits, while introducing new ways to ‘socialize the costs’. Obamacare is just the latest experiment in such new methods to continue ‘socialization of costs’ on behalf of health care services corporations.

Politicians have cleverly pitted the general taxpayer against the bottom 80% households who are the victims of the system of rising health care costs for declining coverage and quality of care. The Obama administration’s 2010 health care law, the Affordable Care Act, continues this problem by failing to provide any long run solution to runaway health insurance and health care costs, by instead subsidizes health insurers and drug companies at public expense, by encouraging employers to dump their health insurance coverage for their workers, by promoting self-rationing of health care services, and, most importantly, by requiring middle and working class America to subsidize 30 plus million of the currently 50 million without any health insurance coverage. The main beneficiaries of the Obama health care act are the health insurance and drug companies that will get the 30 million plus new paying customers.

Admittedly, the insurance companies will have to cover the cost of coverage for dependents to age 26, won’t be able to refuse coverage to customers with pre-existing conditions, will have to provide coverage with no lifetime limits, and all the other positive provisions of the Affordable Care Act that were necessary to buy votes on the cheap from liberal Congress members to ensure its passage. But in exchange for these benefit improvements, the health insurance companies will get 30 million new customers. The companies will enjoy a revenue windfall yearly of about $300 billion (assuming monthly premiums of about $850 on average and $10,000 a year for 30 million). Given that windfall for insurance corporations, it is not surprising that U.S. Supreme Court Chief Justice Roberts recently voted to uphold the constitutionality of the act. It wasn’t because he suffered from a temporary affliction of liberal angst. Roberts has consistently voted in favor of corporate interests on virtually every Supreme Court decision while on the court bench. His vote should be viewed simply as a pro-corporate interest vote, in this case worth $300 billion a year for health insurance companies.

But massive subsidies to health insurance companies is not the only—or event greatest–legacy of the Obama health care act. Continued escalation of health insurance monthly premiums—now rising at around 13% a year once again—is another. So too will be the forthcoming attacks on Medicaid and Medicare that will immediately follow the November 2012 elections. The retired (Medicare) and the working poor and disabled (Medicaid) will be asked to use less and/or pay much more directly for even lower quality health services.

The greatest negative legacy will be a historic collapse of employer provided health insurance coverage that will commence in 2014. Beginning that year, with the activation of mandated individual health insurance required by the 30 million now uninsured, companies will begin to dismantle their employer-provided health insurance plans—leaving their workers either to be driven into the privately obtained health insurance system created by the recent health care act for the 30 million uninsured, or else forced into the even lower quality/reduced coverage Medicaid system. The Obama health care act will thus set in motion, circa 2014, the rapid unraveling of the employer-provided health insurance system that has been in effect since the late 1940s.

What has been underway since the 1990s, in various forms, has been a drive toward privatization of health care by another name: from Clinton’s ‘managed health care’ system to George Bush’s ‘health savings accounts’ to Obama’s individual health insurance exchanges now coming in 2014.

This new, more individualized and privatized system will not result in health care services absorbing a lesser share of GDP, but a greater share. US households and consumers will thus eventually pay even more than 18% of GDP for health care services, resulting in a still further decline in disposable income with which to purchase other goods and services and support economic growth.

The only solution long term to the broken health services system in the U.S. is a true ‘socialization’ of the crisis—not a socialization on behalf of insurance, drug, and other for-profit companies. A socialization of benefits as well as costs in which everyone pays a fair share, not where wealthy investors and corporations are subsidized at pubic expense for what is a right to health care. A solution based on a system of ‘Medicare for All’ funded by a reasonable tax on all incomes—both earned (wages) as well as all capital incomes alike. An elimination of health insurance companies and other middle men from the US health care system saves a minimum $1 trillion a year. Add a reasonable tax of 3%-5% on all forms of income in addition to the $1 million a year savings, and funding a

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AMERICA’S TEN CRISES: Part 2: The Inverted US Tax System

July 1, 2012 by jackrasmus

COMMENTARY: THE FOLLOWING IS THE SECOND OF TEN INSTALLMENTS ON ‘AMERICA’S TEN CRISES’, ADDRESSING THE U.S. ‘INVERTED’ TAX SYSTEM, WHICH HAS BEEN TURNED UPSIDE DOWN OVER THE PAST THREE DECADES, SHIFTING TAXES FROM THE RICH AND CORPORATIONS TO MIDDLE AND WORKING CLASS AMERICA.

The U.S. tax system has been ‘turned on its head’ over the course of the past three decades. It begins with Reagan in 1981 and his $752 billion tax cuts (on a base GDP or only $4 trillion), the vast majority of which accrued to the wealthy and their corporations. A massive shift in income, led by (but not limited to) tax cutting effects has been the outcome. The top tax rates in 1980 were 50% and 70%, they are now nominally 35% (income and corporate) and 15% (capital gains and dividends). However, the effective federal tax rates are 16% for the rich on average, after their tax lawyers get to squeeze the IRS. And State and local taxes on the rich and corporate America have declined even more, as local governments ‘race to the bottom’ in recent decades to desperately try to attract businesses to move to their states. And let’s not forget the $1.4 trillion multinational corporations have stuffed in their offshore subsidiaries in order to avoid paying even the nominal 35%, or their periodic blackmailing of Congress to lower the 35% to 5% to bring back those profits—which they did in 2004 and are proposing once again in Congress. Not to be outdone, don’t forget the $4-$6 trillion that hedge funds, very high net worth individual US investors, and other financial institutions have squirreled away in their 27 offshore ‘tax havens’ to avoid paying the same.

Conversely, taxes on the bottom 80% of US households have risen on net, when one considers the historic hikes in payroll taxes since 1985 and other increases in state and local taxes and fees. The payroll tax alone the past quarter century has raised nearly $3 trillion in federal revenue—money that did not go into the social security trust funds for long but was ‘borrowed’ by Congress every year to help pay for—you guessed it, more tax cuts for the rich and wars. The Bush tax cuts of 2001-04 alone, more than 80% of which has accrued to the top 20% and corporations, has cost nearly $3.5 trillion over the past decade. Should those tax cuts continue for another decade (which is the No. 1 goal of Republicans and corporate America after the election) it will cost the US deficit another $4.6 trillion, according to the Congressional Budget Office’s 2012 projections. The Bush tax cuts represent Reagan tax cuts ‘on steroids’.

Immediately following the US November 2012 elections, in a matter of weeks, watch for even more generous tax cuts for the rich and their corporations—agreed to by both parties. At the heart of the deal will be an extension of most of the Bush tax cuts, and now a reduction as well of the top tax rate for corporations and the wealthy, from the current 35% to around 25%. Middle class tax deductions will be reduced to pay for the deal in part, but most of the cost will be absorbed by massive cuts in spending on health care, education, and other services including Medicare, Medicaid, and Social Security disability benefits. Token, difficult-to-enforce tax loophole closings will help sell the deal, as well as continuing of payroll tax cuts that gut Social Security’s Trust Fund by more than a hundred billion dollars a year—thus serving to ‘starve the beast’ further, as conservatives like to say, and bringing the entire social security system closer to crisis down the road.

The inverted tax system today cannot continue without even greater negative consequences for the US economy long term. It not only has resulted in a massive shift of income upward, and a stagnation in consumption for the bottom 80% households, but has served as a primary excuse for directly attacking the deficits it has produced by cutting spending on programs that are essential for continued economic growth as well.

What the inversion of the U.S. tax system over the past three decades shows is that the U.S. is ‘not broke’. There is at least $5 trillion in cash being hoarded by the rich and their corporations today as a result of the inverted tax system in America. The so-called deficit and debt problem could be cut in half immediately by simply discontinuing the Bush tax cuts as a whole; and eliminated completely by simply rolling back the tax cuts for the rich back to 1980 levels. The inverted tax system is also the no. 1 contributor to the massive income inequality that now characterizes American society. It is also a major reason why sustained economic recovery has not occurred since 2009.

What is needed is a new tax structure that takes the current inverted system and puts it back on its feet, taxing the rich and corporations at appropriate rates once again while reducing taxation for the working and middle classes in order to ‘re-redistribute’ income and to free up income to produce real consumption growth once again.

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AMERICA’S TEN CRISES: Part 1(Chronic Failure to Create Jobs)

June 30, 2012 by jackrasmus

COMMENTARY: IN A BLOG ENTRY A FEW DAYS AGO, THE MOST SERIOUS SHORT RUN ECONOMIC PROBLEM WAS HIGHLIGHTED–I.E. THE EMERGING 3RD ECONOMIC RELAPSE OF THE US ECONOMY. THIS IMMEDIATE ECONOMIC PROBLEM SHOULD BE CONSIDERED, HOWEVER, WITHIN THE CONTEXT OF A NUMBER OF LONGER RUN ECONOMIC CRISES CONFRONTING THE US ECONOMY AND POLITY. WHAT FOLLOWS IS THE 1ST OF 10 LONG RUN CRISES, ANY ONE OF WHICH WOULD BE SIGNIFICANT, IN ITSELF. THE FIRST, THAT FOLLOWS, IS THE CHRONIC LONG RUN PROBLEM OF INSUFFICIENT JOB CREATION IN THE US.–APART FROM AND IN ADDITION TO THE POOR JOB PERFORMANCE OF THE ECONOMY SINCE THE ECONOMIC CRISIS ERUPTED IN 2007. PARTS 2 TO 10 TO FOLLOW WILL INCLUDE TOPICS SUCH AS THE ‘INVERTED TAX SYSTEM’, THE COLLAPSING RETIREMENT AND HEALTH CARE SYSTEMS, THE DECLINE OF US GLOBAL ECONOMIC DOMINANCE AND OTHER TOPICS.

1. Chronic Failure to Create Jobs

The U.S. economy is having increasing difficulty creating jobs. Not just in the short term. Not just jobs lost due the recession that began in 2007 and the jobless recession that has followed. But jobs longer term even in non-recession periods, and especially in the last decade. This longer term problem is sometimes referred to as ‘structural unemployment’, meaning job loss or failure to create jobs apart from recession (cyclical) causes. Full time permanent jobs are being lost, churned, and replaced in the tens of millions by involuntary part time and various forms of temporary employment, sometimes referred to as ‘contingent’ employment. There are easily more than 40 million such ‘contingent’ jobs in the US today, out of a labor force of about 155 million. These are jobs that pay typically 50-70% of normal pay, with virtually no benefits. Another structural problem is the loss of jobs due to offshoring by multinational corporations. A closely related development is the loss of jobs due to free trade agreements. In the last decade alone, recent reports indicate multinationals cut 2.7 million jobs in the U.S. while hiring 2.4 million offshore. Free trade agreements since 1989 have resulted in more than 10 million jobs lost, mostly in high paying manufacturing and business professional services. Simultaneously, multinational tech companies have brought millions of non-citizens to the U.S. on H-1B and L-1 and 2 visas since the late-1990s. These are not unskilled, manual labor, agricultural jobs that Americans don’t want, but high paying technical jobs they do. New technologies are additionally displacing workers in the U.S. where jobs are not yet out- or in-sourced at rates of job loss about equal to that of free trade-offshoring effects. In general, structural forces have wiped out 20 million jobs in less than two decades.

Cyclical trends have impacted jobs no less. Following every recession the last thirty years, it has taken longer and longer to recover jobs lost. In the 1980s and 1990s, it took 25-35 months. After the 2001 recession it took 48 months. After the most recent it will take more than twice that, 96 or more months at best estimate. In recovery from every recession since 1947, hiring by state and local government has led the way, in effect offsetting and dampening private sector job loss and thereby shortening the recession. Not today. State and local governments are the ‘layoff leaders’. Nearly 700,000 such public sector jobs have been lost in just the past 3 years. Millions more workers have simply left the labor force this past decade. While the US population has risen since 2000 by more than 21 million, total private employment has not risen at all. There were 111.3 private sector jobs in May 2000; there are 111.3 million private sector jobs today.

This is not a picture of an economy able to create employment for its citizens. And stagnant job growth—short and long term—means stagnant income growth. Stagnant income means, in turn, increasing problems of maintaining consumption and economic growth in general. What is needed is a broad set of programs and policies to revitalize job markets in the U.S. by reversing the above negative long run job creation trends. In the short run, what is needed is a massive government jobs program funded by a fundamental restructuring of the tax system.

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The Emerging 3rd U.S. Economic Relapse

June 26, 2012 by jackrasmus

In a few more months, it will be the fourth year since the banking crash of September 2008, the election of Barack Obama, and the deep recession and weakest recovery on record that followed. After nearly four years—and more than $3 trillion in tax cuts and spending by Obama and Congress and $9 trillion in free money given to the banks by the Federal Reserve—the U.S. economy has still not been able to generate a sustained economic recovery. Since April 2012 key sectors of the US economy are once again weakening. And with $2.2 trillion in sequestered government spending reduction scheduled to hit the economy beginning January 2013—plus the likelihood of trillions more in additional spending cuts to occur immediately after the November elections, the Eurozone’s deepening crisis, and China-India-Brazil all headed for a hard landing—the prospect of a double dip recession in the U.S. is increasing.

The prediction of double dip was first raised by this writer a year ago, in Z magazine’s June 2011 issue. It was reaffirmed in this writer’s latest book, ‘Obama’s Economy: Recovery for the Few’, completed November 2011 at a time when pundits and mainstream economists were all forecasting a robust rebound of the US economy over the winter, and repeated once again in the writer’s article, “Economic Predictions 2012-13” in the January 2012 issue of Z magazine. The double dip would most likely come in early 2013, it was argued, but possibly even earlier if the Eurozone and global economy experienced a second major banking crisis beforehand.

To quote from the January 2012 publication, “The first quarter of 2012 will record a significant slowing of GDP growth once again. Should the Eurozone debt crisis escalate in the second quarter of 2012, the U.S. economy will weaken further. It may even slip into recession if the Euro crisis is severe. More likely, however, is the scenario of an emerging double dip recession in early 2013, when deficit cutting by Congress and the Administration intensifies.”

The forecast of a double dip was, and remains, predicated on three factors: first, the continuing inability of Obama and Congressional policies to generate a sustained recovery. Second, a growing financial crisis and deep recession in Europe spilling over to the U.S. And third, a consensus decision and action by both political parties, Republicans and Democrats, immediately after the November 2012 elections to cut spending by several additional trillions of dollars, over and above the $2.2 trillion already scheduled to begin taking effect January 2013.

The ‘grand bargain’ revived immediately after the November elections will most likely include some token initial spending for a year, more stimulus in the form of even more tax cuts for business plus more subsidies for the states, a continuation of the Bush tax cuts for another decade in most part that will cost over $4 trillion more in deficits, further cuts in the top tax rate from 35% to 25% for corporations and the rich, and, to pay for it all, massive cutting of Medicare, Medicaid, Social Security disability, education, and just about all other areas of discretionary spending, except for defense where cuts will be reduced from the $600 billion already projected in the sequestration package of 2011.

So far as the short term of the past three years is concerned, none of the Obama administration’s three economic recovery programs introduced 2009-11 have been able to result in a sustained economic recovery. Each has led, in succession, to three economic ‘relapses’—where the latter is defined as a dramatic loss of economic momentum across key economic sectors of the economy following short, modest and temporary rebounds. At mid-year 2012 the U.S. economy consequently now finds itself in the midst of the third such relapse, following a third (shortest and weakest) rebound that occurred November 2011-March 2012.

With the U.S. third rebound now clearly showing signs of dissipating at mid-year 2012, and the economic crisis progressively growing in scope and intensity across Europe, two of the three strategic preconditions for double dip are thus being realized. The third precondition—the aforementioned immanent turn by U.S. political elites of both parties to still more spending cuts in addition to the $2.2 trillion already scheduled this November-December—appears increasingly likely. And should that occur, along with the first two preconditions already well evolved, a double dip is assuredly on the agenda for 2013.

This writer’s 2011 forecast of a double dip in 2013 is not unique, but is shared by others, including economist, Nouriel Roubini, financial George Soros, and the Economic Cycle Research Institute (ECRI), the latter of which has had the distinction of predicting the beginning and end of the last two recessions in 2001 and 2007-09 and has been calling a recession even earlier in 2012.

This past spring, 2012, another even more conservative source has added its voice to the prediction: the Congressional Budget Office. The CBO predicts recession in 2013 should just the $2.2 trillion in sequestered spending cuts agreed by Congress last August 2011 start taking effect in 2013. The $2.2 trillion cuts alone would be sufficient, according to the CBO, to drive the economy into recession again in 2013. Add to this the already weakening US economy and the Eurozone crisis, the scenario of double dip is therefore even more likely.

Politicians of both political parties have failed miserably over the past four years to deal with the fundamental causes and the resulting consequences of the economic crisis that erupted in 2007, morphed into the worst economic downturn in seven decades in 2008-09, followed by the weakest, most lopsided recovery on record for the past three years since 2009 that continues to date. But underlying this short term failure are a number of just as serious, if not more so, fundamental longer term crises.

Jack Rasmus
Copyright June 2012
Jack is the author of the recently published book, Obama’s Economy: Recovery for the Few, April 2012, published by Pluto books and Palgrave-Macmillan. His blog is jackrasmus.com and website, http://www.kyklosproductions.com, where his articles and radio and tv interviews are available.

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The Real Causes–and Real Solutions–to the Growing US Pensions Crisis

June 26, 2012 by jackrasmus

Introductory Comments: The following article was written for the US-wide unionists group, the Emergency Labor Network, as one of its position statements. A more in depth analysis of the same topic is available on this writer’s website, http://www.kyklosproductions.com, (see ‘articles toolbar tab on the webpage) and accessible from the sidebar of this blog.

A pension crisis of major dimensions is growing in the US across all three forms of defined benefit plans (DBPs)—public, private single employer, and private multi-employer plans.

Corporate America and its political friends have begun to use the economic crisis that commenced in 2007 as an opportunity to initiate and expand yet another offensive aimed at further undermining defined benefit pensions in the U.S. Having already begun in 2009-10 with a new attack by governors on public employees’ pension plans, the Corporate Offensive over the subsequent eighteen months has expanded to include new coordinated attacks on private sector multi-employer and single employer DBPs as well.

Contrary to corporate, press and politicians’ claims, the crisis in pensions has had nothing to do with pension benefit increases for the workers. In many cases pension benefits have been frozen or actually reduced over the past decade and especially so since 2008.

Rather the crisis is directly attributable to government and corporate policies that have been implemented over the past thirty years—including, but not limited to, two decades of government encouraged management practices reducing pension funding, stagnant jobs and wage growth since 2001, massive speculative investment losses by pension funds, the collapse of the economy, jobs, and pension contributions after 2007, and the failure of the US economic recovery to restore jobs and wages the past three years, 2009-12.

Brief Overview of the Pensions Funding Gap

Multi-employer defined benefit pensions in the 1990s averaged shortfalls in funding (i.e. ratio of assets to liabilities) of only a very manageable $30 billion throughout the decade.
A 2009 Report by the Pension Benefit Guarantee Corporation, the quasi-government agency responsible for ensuring pension funds stability and solvency in the private sector, had a funding shortfall of $355 billion. A similar scenario applies to ratios and shortfalls in funding for single employer pensions, with funding shortfalls of approximately $407 billion. The highly respected Pew Center’s 2008 estimated public sector pensions gap for 2008 of $452 billion.

But the shortfalls in all the defined benefit pensions are overwhelming the result of economic conditions, government policies, and corporate practices over the past 12 years. In 1999, state public employee pensions were 103% funded, according to the Pew Center. Similarly, private pensions—multi-employer as well as single employer—were in good shape at the beginning of 2000. Whatever has happened is therefore clearly a consequence of events and policies since 2000.

Employers sense an opportunity today to falsify the facts regarding the causes of defined benefit pension shortfalls, and to use that falsification to attack and dismantle what’s left of defined benefit pensions that now cover barely 18% of the workforce compared to three decades ago when the percentage of coverage was two thirds or more. What facts are being conveniently ignored in this new corporate offensive?

Corporate Manipulation of the Pension Funding Gap

Corporations have not hesitated to take advantage of the funding gap that they themselves have largely created, with the help of compliant politicians.

On the multi-employer side, the employer new offensive is evident in a series of banks’ reports claiming the funding gap is even greater than it is. By making extreme low-ball assumptions on returns, banks’ research departments and corporations argue the gap for multi-employer plans is significantly higher than even the PBGC has estimated. Their conclusion is major reductions in pension benefits are therefore required, even though pension benefit payments are not the source of the problem.

This strategy of overestimation of the funding gap, cherry-picking the worst assumptions and then extrapolating the losses in a straight line out for decades, has been adopted as well by governors and state politicians intent on cutting pension benefit payments to resolve a crisis workers did not create.

A typical, extreme case is New Jersey governor, Chris Christie, who over-exaggerates an estimated $2.5 trillion funding gap in 2010—i.e. six times greater than that estimated by the respected Pew Center. Christie’s answer to the shortfall in New Jersey is a massive gutting of public employee pension benefits. However, Christie conveniently hides the fact that his state, New Jersey, only made 31% of the required contributions to its employee pension fund in 2009, thus contributing significantly to its relatively low funding ratio of 66%. Like Christie, governors complaining the most about State pension funding gaps are typically those who created those gaps by refusing repeatedly to make the required contributions to their pension funds in the first place.

Single Employer Pension funds are also under a similar direct attack, exemplified by the latest efforts of American Airlines to project massive losses in its fund as a way to justify dumping it on the PBGC and thereby shedding $9 billion in contributions it should have made, but didn’t, for decades. American Airlines for decades has been one of the most egregious practicers of ‘pension contribution holidays’, refusing year after year to make legally required contributions to its fund, and thereby ensuring it would be under-funded.

Fundamental Causes of the Pension Funding Crisis

The deterioration in defined benefit pensions over the past decade has had virtually nothing to do with providing more generous benefits for workers. Nor is it the case that workers are retiring in greater numbers all at once. The causes of the pension shortfalls are due to reductions in employer contributions to the pension funds for multiple reasons, to speculative investments gone bad and massive losses in pension funds over the preceding decade, a major collapse in jobs since 2000 due to repeated and protracted recessions, jobless recoveries, and shifting of jobs offshore that have further undermined total pension fund contributions, and government policies since 2008 that have ensured pension fund returns on investment are reduced to below-normal historical rates of return..

The following is a partial summary short list of a dozen true causes of shortfalls in defined benefit pension funding.

1. Two recessions since 2000 and two bouts of ‘jobless recoveries’ (2002-05 and 2009-12) resulting in sharp reductions in contributions to the funds

2. Structural unemployment due to offshoring and free trade that has in addition to #1 progressively reduced jobs and therefore contributions, especially in tech and manufacturing industries

3. Government allowed ‘pension contribution holidays’ that permitted suspension of employer contributions for decades, thus further lowering the contributions base of the funds

4. Employer manipulation of actuarial assumptions, like phony overstated rates of return and projected hirings that never happen, that covered up the shortfalls

5. Government rules that allow the diversion of pension funds to cover 20% of rising employer health care insurance costs

6. De-unionization of the workforce, resulting in employers suspending private pension plan participation for new workers, thus further reducing contributions.

7. Shift in U.S. job markets to part time and temp ‘contingency’ jobs and workers by tens of millions, who are excluded from participating (and thus contributing) to DBPs

8. Legislation and court decisions over the past decade that have promoted 401k plans and conversion to ‘Cash Balance Plans’, diverting contributions to what would have been to defined benefit pension funds.

9. Phony business bankruptcy policies that have permitted easy dumping of pensions on the PBGC, the Pension Benefit Guaranty Corporation that ensures DBPs, encouraging employers to underfund the pensions to create justifications for dumping the pensions.

10. Easing of restrictions allowing companies to leave multi-employer plans and for single employers exiting the PBGC

11. Pension Protection Act of 2006 that allowed pension funds to partner with high-risk speculators like hedge funds, resulting in pension funds’ headlong rush into speculative investing in subprime mortgages and other high risk real estate and financial markets, the consequence of which was massive fund losses in 2000-02 and again in 2008-12.

12. Low rates of return in general over the last decade on investments by pension funds, attributable largely to the protracted recession since 2008 and, even more so, to the Federal Reserve Bank’s still continuing policy of zero interest rates for four consecutive years.

Fundamental Solutions to the Pension Crisis

Pension funds are financial institutions. They perform much like commercial banks by lending to other non-financial institutions.

In 2008-09, the Federal Reserve bailed out the banks to the tune of $9 trillion by providing zero interest loans to banks for the past four years. The Fed also bought up bonds, especially mortgage notes, from the banks at their full value instead of their real depressed market values, thus further directly subsidizing the banks. The Fed in this manner not only bailed out banks and investment banks, but big conglomerates like GE and GM and their credit arms. So why shouldn’t it similarly provide assistance to financial institutions like the pension funds?

Given that the real causes of current pension fund shortfalls are: insufficient contributions by employers, bad investments by fund managers as a result of high risk speculation and losses, government rules allowing the undermining of pensions, and poor rates of return on investments by funds due to government economic policies since 2000—real solutions to the crisis should tackle the real causes.

Therefore, Congress, the President, and the Federal Reserve should:

· Provide short term 2 to 5 year bridge loans as needed to pension funds temporarily whose funding falls below 70%–i.e. funding provided at the same rate the Federal Reserve has been bailing out banks for the past four years, at a rate of 0.25% interest.

· Allow pension funds to issue their own bonds, much like corporations now issue bonds, and the Fed purchase those bonds long term, 10 and 30 years, to provide additional funding as necessary to pension funds.

· Prohibit pension funds from partnering in investments with hedge funds and other high risk financial institutions and financial instruments.

· Cities and local municipalities should be reimbursed for losses due to banks’ fraudulent and false promotion of derivatives and interest rate swap deals of the last decade, just as other institutional investors have been reimbursed for fraudulent subprime mortgages deals of recent years.

· Pension funding contribution holidays should be legally banned. Diversion of pension funds’ resources to subsidize employer health plans should be further prohibited.

· Corporate bankruptcy laws should be amended to prevent dumping of single employer plans. All non-pension assets in bankruptcy should be ruled subordinate to pension assets, requiring all other assets disposed of before pension funds are considered.

· Restrictions on employers exiting from multi-employer plans and from the PBGC should be strengthened.

· Public employee plans’ spending on consultants should be limited by law to no more than 1% of annual contribution levels.

· Employers should be prohibited from exempting ‘contingent’ workers from participation in plans, and should be required make pension fund contributions for all part time and temporary workers proportional to their total hours worked.

· Restore jobs and wage growth. The most important long run source of restoration of pension fund solvency is the creation of jobs at an historically acceptable rate.

· A sustained economic recovery—not the current ‘stop-go’ economy—that would raise rates of return on normal pension fund investments to restore losses of recent years

The crisis in Defined Benefit Plans is a crisis that has been brewing for decades, but that has appreciably worsened since 2000 and significantly further deteriorated after 2007. It is a crisis of falling and insufficient contributions fundamentally and not a crisis of excess liabilities or benefit payments to workers. Employers, both private and public, are now using the crisis they created that reduced contributions for decades to attack benefits. Fundamental solutions to the pension funding problems in DBPs must rectify the source problems on the contributions side of the fund ledger.

Jack Rasmus, copyright June 2012
Jack is the author of the just published book, “Obama’s Economy: Recovery for the Few”, April 2012, Pluto books and Palgrave-Macmillan, ordering from this blog at discount.

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Are Central Banks Preparing for a Global Banking Crisis?

June 21, 2012 by jackrasmus

Nearly four years after the 2008 banking crash, and more than $11 trillion in liquidity injections in the US and Eurozone-UK-Japan, the global banking system is again showing clear signs of growing unstable. Notwithstanding several rounds of bank ‘stress tests’ on both sides of the Atlantic since 2009, what has been improperly identified as a sovereign debt crisis in Europe is revealing itself with each passing week, as a more fundamental banking crisis as well.

This past week registered a series of reports and events that strongly suggest below the surface the global banking system is not in particularly good shape, and is getting worse.

The most recent indication was yesterday’s, June 21, announcement by the rating agency, Moody’s Inc., downgrading 15 banks across the globe. Included were the two big US banks, Bank of America and Citigroup, which have been in effect technically insolvent since the 2008 bank crash but which have been kept afloat by various measures supported by the US Federal Reserve. Under pressure by the US government, both have been selling off their best assets at near-firesale prices in order to raise capital. Not much better has been the US investment bank, Morgan Stanley, which recently hosted the bungled Facebook initial public offering. French and UK banks fared no better, however. HSBC, Royal Bank of Scotland, Societe General, and even the Swiss, Credit Suisse were all downgraded. This kind of widespread, global downgrading does not occur randomly. It is reflective of something systemically at work.

The Federal Reserve Signals QE3

A day before the Moody bank downgrades, the U.S. Federal Reserve announced a further $267 billion liquidity injection into the US system, in an extension of its ‘Quantitative Easing 2.5’ program called ‘Operation Twist’ announced last fall. That $267 billion was in addition to the original ‘Twist’ QE 2.5 of $400 billion, which followed a prior QE 2 of $600 billion in 2010 and a QE1 of $1.75 trillion in 2009. The ‘markets’ in the US—which means banks, various financial institutions, and very high net worth individual investors—responded to the Fed’s latest extension of QE 2.5 announcement with a thud. Stock markets in the US the following day had their worst decline in months. Expect more of the same soon to come. Investors expected on Wednesday that the Fed would introduce a bona fide QE3. Translated that means expectations of hundreds of billions more of Fed direct liquidity injection into the markets, buying up not only US treasuries but mortgages and other bonds and securities. After all, QE 2.5 was coming to an end this month, and the Fed for the past four years has always followed the concluding of a QE program with still another QE liquidity injection. Indeed, a good argument can be made that the ‘markets’ in the US are becoming increasingly dependent upon—even addicted to—continuing massive Fed liquidity injections.

The correlation between announcements and anticipations of new QE programs and the take off of stock markets, and the declining of stock market indices as QE reach the end of their course, has been very high.

Dow-Jones Industrials Average & QE Correlation

QE Program   Dow Low & Date  QE Intro Date  QE Conclusion Date  Dow High & Date

QE 1                7,062                  March 3, 2009          April 4, 2010         11,204

(February 27, 2009)                                                         (April 23, 2010)

QE2                 9,686              November 4, 2010       June 30, 2011      12,657

(July 2, 2010)                                                                            (July 8, 2011)

QE 2.5           10,992

(September 9, 2011)  September 21, 2011        June 30, 2012        12,837

(June 19, 2012)

Source: Dow-Jones Industrial Average (DJIA) History, online at nyse/tv/dow-jones-industrial-average-history-djia.htm.

While QEs have been a boon to stocks and other speculators, QEs to date as a group have accomplished very little in terms of helping generate a sustained economic recovery in the U.S. In that respect they have done no more than the additional trillions of dollars in liquidity injections by the Fed in the form of near zero interest rates for almost four years now. Like QEs, near zero interest rates were supposed to provide virtually ‘free money’ to financial institutions that were, in turn, supposed to lend to stimulate investment and jobs. But that didn’t happen. Following QE1 and zero rates, after the official end of the recession in June 2009 bank lending fell for 15 consecutive months. To whatever extent bank lending rose in 2010 it went mostly to hedge funds and the largest corporations. Small and medium sized companies continued to starve for bank loans. And now, in recent months, lending is in retreat once again. So if anything is proven by the past four years, it is that monetary and Fed policies (QE, zero rates, etc) have had little to no effect on the real economy and economic recovery in the U.S. What they have achieved is a return to speculative lending practices by banks (called euphemistically ‘trading’)—i.e. banks lending to hedge funds and other institutional investors that then speculate in foreign currencies, commodities, oil futures, stocks, junk bonds, and, of course, derivatives of various sorts including CDS on Greek sovereign bond debt.

ECB Follows the Fed’s Lead

What the US Federal Reserve has been doing since 2008 the ECB has begun to mimic increasingly as well. For the EU banks, the ECB since late 2010 has been the only game in town when it comes to EU banks’ bailout. The two Euro-wide bail out funds, the European Financial Stability Facility (EFSF) and the more recent European Stability Mechanism (ESM) are targeted mainly for bailing out sovereign debt, from Greece to Spain and beyond. And the International Monetary Fund’s smaller cash hoard is being held in reserve, uncommitted, as the IMF tries desperately to line up China and other emerging economies’ contributions to its fund. But now the Euro banks are in deepening crisis, not just the governments, confirming what this writer has been saying and publishing for more than a year—namely, what’s developing in the EU is not simply a sovereign debt crisis and contagion but, more fundamentally, a growing banking crisis and contagion. It is a dual debt crisis growing in scope and intensity, and the two poles of the crisis—sovereign and banking system—are exacerbating each other.

Following the lead of the US central bank, the Federal Reserve, since 2010 the European Central Bank, ECB, has injected the equivalent of trillions of dollars into the Euro banks, including hundreds of billions of dollars in late 2011 plus another $125 billion earlier this month in what is only an initial tranche required to bail out Spanish banks. An eventual full bailout of Spain’s banks will cost, per this writer’s estimate, at least $300 billion. (And that doesn’t include future bailouts of more hundreds of billions of dollars to rescue Spain’s regional and central governments that the EFSF and/or ESM bail out funds will have to address.)

The Eurozone banking crisis is so severe that in recent months cross-border bank to bank lending in the Eurozone has been drying up. As ECB chairman, Mario Draghi, reportedly said just last week, the inter-bank lending system is ‘dysfunctional’ and ‘simply not working’. And as inter-bank lending has begun to dry up, so too as lending to EU nonbank businesses. Together the two developments signal a sure sign of a general banking crisis in early stages of development.

Much of the growing EU bank crisis can be laid at the feet of the general solution to the sovereign debt crises that EU governments, banks, and investors have been attempting to implement for two years now: Austerity. Austerity solutions imposed in Greece, Spain and now the U.K. result in less government revenue generation and further rising government debt. Repeated and prolonged recessions result in revenue falling off faster than cuts in deficit spending (austerity) can make up for the revenue losses. Budgets consequently continue to fall deeper into the red and government bond yields escalate further. Speculators in credit default swaps on government debt then accelerate the process, making it worse. Government debt then has to be restructured, often at a greater cost. Austerity solutions also have a simultaneous negative impact on the private sector as well: The deficit cutting at the heart of austerity solutions results in less consumption by households and subsequently less business spending in turn as household income drops. Banks thus generate less income from loans to businesses and households, while they simultaneously have to put aside more capital in anticipation of sovereign debt losses. Bank lending freezes up, as is now increasingly the case in the Eurozone, just as it has been in the U.S.

The Bank of England

Like the US Federal Reserve and the ECB, the Bank of England ((BoE) has also implemented a near zero interest rate policy and successive QEs. To date nearly $500 billion has been committed to QE bond and securities buying by the BoE. But that hasn’t prevented the UK from falling into a double dip recession recently, as the government simultaneously embarked on a major austerity, deficit cutting policy. QE by the central bank may have temporarily kept the UK banking system afloat, but not so the economy now in a bona fide double dip.

A week ago the BoE’s monetary policy committee met to discuss increasing the amount of liquidity into the banks in yet another QE round. It postponed that decision, however, until early July, waiting on events in the Eurozone later this month, and further ECB and US Federal Reserve actions. Another $120 billion QE by the BoE therefore will likely soon occur.

Bank of Japan

The Bank of Japan also launched its own QE in a surprise move this past February-March 2012. It is projected to further that injection of liquidity later sometime later this year

Global Central Bank Crisis Coordination

What appears in development is an attempt on a global scale to coordinate central bank interventions in the form of QE liquidity injections, not only in the Eurozone but elsewhere as well. This appears to be in response at least in part to the big private banks globally demanding such coordinated action. In other words, they expect another banking crunch soon and are demanding another bailout in anticipation and before it happens.

The Eurozone debt crisis in Spain, Greece, and soon Italy is only one of the main drivers of this, however. The sovereign debt crisis represents a squeeze on banks’ income as a result of borrowers inability to repay principal and interest on past debt. Austerity is about getting someone else, the taxpayer and populace, to pay the bill. QE, zero interest rates, and monetary policy represents the equivalent of a massive, short term ‘bridge’ loan (often free of charge) to the banks via printing money or government subsidized bonds. But all that’s ‘past’ payment revenue. The deepening recession represents the inability of banks to earn ‘future’ revenue.

And recession and future revenue shortfalls are the even greater, imminent threat to banks’ solvency. Not only is the Eurozone rapidly descending, country by country, into recession across the continent, but the UK is already there. Meanwhile, the US economy is now clearly on a track in recent months to its third ‘relapse’ this summer. Economic indicators across the board are flashing red, from jobs to housing to business spending to manufacturing activity to consumer and business sentiment. And should US policymakers decide in November 2012 immediately after the elections to cut spending by an additional $2-$4 trillion, on top of the $2.2 trillion to start taking effect in January 2013—as this writer has repeatedly predicted will be the case—then a US double dip recession is etched in stone. At the same time it is becoming abundantly clear, as this writer also predicted last year, that China and the other BRICS economies are destined for a ‘hard landing’ in 2012-13. All that said, a global double dip possibility is rising significantly.

The banks know this and are demanding pre-emptive action by their respective central banks in order to buffer their cash and liquidity up front. A coordinated global QE action may buy global banks some additional time, but it won’t solve the bigger problem of a global economy slouching toward a synchronized double dip. Bankers may indeed get their pre-emptive bailout. But the rest of the economy will likely be left to fend for itself in 2013-14, just as it was in 2009-11. Only this time, this ‘second dip’ may be worse, much worse, than the first.

Dr. Jack Rasmus
June 2012

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U.S. Jobs, GDP, and the Eurozone

June 4, 2012 by jackrasmus

Friday, June 1, is a date that marks a shift in the public consciousness of the state of the US and global economy.  What was touted for months over the past winter as a rebound taking hold in the US economy and the assertions that the US economy was ‘exceptional’ and would not suffer the slowdowns underway in Europe, China and the rest of the world – were all swept away on June 1 by the May US jobs report, a downward revised U.S. GDP numbers for the first quarter 2012, as well as by the rapidly deteriorating banking and general economic situation in the Eurozone.

Why Economists’ Jobs Forecasts Consistently Miss Their Mark

On the jobs front, Friday’s labor department data showed a growth of only 69,000 jobs, while the preceding month’s jobs numbers were revised downward for April from 115,000 to only 77,000. Both months were originally officially forecast by mainstream economists to show jobs growth of 150,000 and 180,000 respectively. A day earlier, the first quarter GDP numbers were also adjusted downward from 2.2% growth to only 1.9%, a decline that was totally unexpected by most economists, who had been forecasting that the current quarter, April-June, GDP would come in around the 2.5% to 3% range. But now will almost certainly end up in the 1.5% or even lower range, given a likely more rapid slowing in June.

One cannot miss jobs and GDP forecasts that badly without something being fundamentally wrong with forecast methodologies employed by most mainstream economists today, a point this writer has been making publicly repeatedly since last December.

The main excuse being offered today by economists for missing their recent jobs and GDP forecasts so badly is ‘the weather’.  The exceptionally good weather this past winter, it is argued, moved normal spring production and jobs up by several months into the winter numbers. Another favorite excuse now appearing is that growing uncertainty about the coming ‘fiscal cliff’ (read: excessive deficits) after the upcoming November elections has resulted in an unanticipated slowing of business spending, and therefore of new investment and consequent job creation.

But the extremely poor jobs numbers for May and April have very little to do with the ‘weather this past winter’. Nor with business confidence impacted by anticipated deficits and debt levels after the November elections. It’s just bad forecasting, the result of cherry-picking the most recent jobs data to forecast long term, but without considering the broader economic picture and ‘broad turning points’ in the US and global economy.

In part, the winter months’ jobs numbers were grossly overestimated statistically for several reasons. As this writer has repeatedly noted in this and other publications, the jobs numbers during this past winter were suspect in the first place, largely boosted by questionable statistical adjustments based on methodologies that were more relevant pre-2007, but less so today. When this past winter’s jobs reports, averaging more than 200,000 a month are ‘smoothed’ out with April and May jobs results, what remains is a picture of continuing stagnant jobs growth since the economic relapse of last summer 2011.

To the extent jobs growth did occur over the winter, that growth was due to business spending, the nature of which was clearly unsustainable beyond a few months. Very short term, temporary factors were at work at the time that were clear for anyone willing to look: (1) excessive inventory build-up after the general inventory spending collapse of last summer; (2) business one time leveraging of end-of-year tax cuts; and (3) auto sales recovering from summer 2011 supply disruptions combined with deep year-end price discounting by the auto companies. None of which were long-term sustainable, as recent data are now beginning to show. And none of all this has anything to do with ‘business confidence’ falling due to growing concern about deficits and debt levels post-November elections.

Since August 2011, including the questionable brief jobs surge over the winter, the U.S. economy on average has been creating jobs at a pace of barely 125,000 a month, i.e. not even sufficient to absorb new entrants into the labor force. The reasons for the long term stagnation of job creation in the U.S. are simple. There is still no real recovery in new housing and construction spending in the U.S.; the Obama administration’s policies subsidizing manufacturing and exports since 2010 have produced a mere dribble of new jobs (even though many jobs created are at half pay); state and local governments continue to lay off tens of thousands every month; hundreds of thousands of workers continue to leave the labor force monthly; bank lending to small businesses never really recovered from 2009 lows and is slowing once again; and real median household incomes have continued to decline in 2012, devastated in recent months a third time in as many years by rising gas, food, healthcare, education costs, and other prices.

Specifically, household consumption – the most important economic sector – continues today at best to stumble along, kept from contracting sharply only by rising credit card balances, historically cheap auto financing, rising household dis-saving, and, for the wealthiest 10%, by the ups and downs of the stock market (now in another sharp down phase until the Fed announces another ‘QE3’ program later this year). But there is no basic household income growth for the bottom 80%, nearly 100 million, households in the U.S. Median household income has fallen by more than 5% the past few years, continuing what is clearly a long term trend that began more than a decade ago in 2001, and thus far resulting in a decline of more than 10%.

Credit card, debt-driven, dis-saving-based consumption cannot be sustained. And without fundamental household income growth for the bottom 80%, combined with fundamental reduction of household debt loads, no sustained jobs recovery will occur.

The 1st Quarter GDP Statistical Revision

A similar critique applies to mainstream economists’ winter predictions that GDP would continue to rise in the second quarter higher than the first quarter’s initial 2.2% estimate.

As previously noted, GDP growth in the fourth quarter was largely inventory driven or a result of one-time year-end business spending designed to leverage business tax cuts. To the extent household spending occurred, it was debt and dis-saving driven. Both inventory spending and business spending thereafter slowed significantly in the first quarter, while government spending at all levels continued to decline significantly.  Manufacturing and exports grew only modestly in the quarter.

But economists nonetheless predicted manufacturing and exports would accelerate in the second quarter, jobs growth over the winter would raise income and household consumption, and the ‘warm winter’ construction trend finally signified a turnaround of the housing sector and its recovery and contribution to growth in the spring. But none of this happened after February.

Almost all economists underestimated the impact of first quarter accelerating gas and fuel prices on consumers’ spending.  The run-up in gas prices was largely the consequence of global speculators’ driving up the price of oil, combined with US refineries conveniently shutting down refinery plants simultaneously (which they typically do when there’s a surge in global crude oil prices), plus retail stations then holding prices at the pump up while crude and refinery prices fall. This coordinated supply chain development has occurred repeatedly since 2008. That year surging oil (and commodity) prices drove inflation to excess levels, despite a recession in the US already underway. It happened again in 2010, and again in 2011. The impact of rising gas prices on the US economy is generally underestimated by economists. The impact of the first quarter 2012 surge in gas prices on the current slowing of the US economy has been significant – and was generally unheeded by economists in their GDP growth projections earlier this year.

Nor were sanguine forecasts for the first quarter of accelerating jobs growth realized. Instead, jobs growth in April and May collapsed, as noted above – and with it, the projected income and consumption recovery. Home sales and home prices further disappointed, confirming no real recovery in construction. Finally, manufacturing and exports began to hit the wall of a global manufacturing slowdown, most serious in the Eurozone, but occurring in China, Brazil, India and elsewhere as well.

Already by June, bank research departments project a lower estimate for GDP growth for the second quarter, and even the third, July-September. But just as they underestimated the gas spike effect and the jobs collapse earlier, they are similarly underestimating the general impact of the Eurozone crisis and the global manufacturing slowdown now beginning to worsen rapidly.

The Eurozone Crisis and US Economic Contagion

 The Obama administration’s first and second economic recovery programs, costing nearly $1.7 trillion in tax cuts and spending in 2009-2010, failed to produce a sustained economic recovery by 2011. The third recovery program, dribbling out piecemeal since September 2011 and culminating in the absurd ‘JOBS’ bill and HARP 2.0 housing plan, is now proving no more effective than the previous two programs in 2009 and 2010.

At the center of Obama’s third recovery program has been a focus on manufacturing-exports, run by General Electric’s CEO, Jeff Immelt.  At the request of the big multinational corporations in 2010, Obama delivered more free trade agreements, more business deregulation, more pro-US business trade assistance, backed off from insisting they repatriate offshore profits and pay taxes, and introduced other manufacturing-centric US corporate assistance. This manufacturing-exports strategy was purportedly to generate the recovery that the 2009-10 first two programs did not. Manufacturing would ‘lead us out of the recession’, Obama and business announced. But it hasn’t – and it won’t.

Manufacturing now represents too small a total of the US economy at only 12% and employs only 11 million out of a US labor force of more than 150 million. The US dismantled and shipped its manufacturing base overseas over the past three decades. Multinational corporations admit that, in the last decade alone, they reduced employment in the US by 2.7 million jobs and hired 2.4 million offshore. Approximately 8 million jobs in manufacturing in the US have been lost just since 2000. Yet manufacturing, and the even smaller sector of manufactured exports, was supposed to generate the recovery in 2011-12 that still has not occurred.

Manufacturing did revive modestly since early 2011 but, as this writer predicted in late 2011, has now run headlong into a rapidly declining global manufacturing sector. The Eurozone’s manufacturing and exports have plummeted since late last year. Virtually all Eurozone economies’ manufacturing indicators (PMI) are also now declining. Moreover, China, Brazil and other key economies’ manufacturing and exports sectors are contracting as well. Manufacturing and exports are rapidly slowing across the world.

There is no therefore way US manufacturing and exports can continue to grow in a global economy where they are rapidly declining just about everywhere else. Meanwhile, housing and construction in the US is still bumping along a depression level bottom, with only apartment building showing any signs of growth. And state and local government spending continues to contract in most regions. Along with stagnant jobs growth, this is a scenario for slower growth in what remains of 2012, not a recovery.

Some mainstream liberal economists argue the Eurozone and China’s declining manufacturing and exports sectors will not negatively impact the US economy, since trade in goods is not that large a part of the US economy. But the flow of goods is not the key transmission mechanism for the contagion of the Eurozone’s accelerating recession impact on the US economy. The key transmission mechanism for the contagion is the banking system. Bank lending is already freezing up in Europe, as all the economies there (except Germany) have already crossed the threshold into what will prove a deep and protracted recession. Potential bank losses will likely spread from Spain and Greece to elsewhere in Europe, in particular Italy and France. Those losses and the lending freeze will spread to the US, where bank lending, already slowing to small and medium businesses again, will decline still further in the US, resulting in a slowing US economy in turn.  Meanwhile, the US corporate bond markets and bond issues are slowing, junk bonds in particular. That will result in a further US slowdown in business spending and job creation.

 

As this writer concluded last October 2011 in the book, ‘Obama’s Economy: Recovery for the Few’, which predicted a steeply slowing global economy in 2012 driven by the Eurozone and a ‘hard landing’ in China, Brazil, and elsewhere, “The U.S., Eurozone and U.K. economies are tightly integrated, not just financially, but in a host of other economic ways. What happens on either side of the Atlantic soon produces a similar reaction on the other.”

In the months to come, the jobs markets in the US will continue at best to stagnate; apart from seasonality factors, the housing market will continue to ‘bump along the bottom’ as it has for four years now; government spending will continue to decline; and business spending, bank lending, manufacturing and exports will continue to slow, while consumers will continue to rely on credit and dis-saving to maintain consumption. GDP as a result will continue to lag.

And when US political elites gather immediately after the November elections, both political parties’ leaders will agree by December 31 to cut $2-$4 trillion more in spending in addition to the $2.2 trillion already scheduled to begin in January 2013. But they won’t call it austerity, which is the term for the deficit cutting in Europe from Greece to the U.K that is driving their economies into a deeper crisis. US capitalists and policy makers are more clever than their European counterparts. The US code words used for austerity will be ‘grand bargain’ and ‘fiscal cliff’.

Jack Rasmus

Copyright June 2012

Jack is the author of the April 2012 published book, “Obama’s Economy: Recovery for the Few”, published by Pluto books and distributed by Palgrave-Macmillan. His blog is jackrasmus.com and website: www.kyklosproductions.com

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JP Morgan and US-Europe Banking Contagion: Is Another Global Financial Crisis Brewing?

May 14, 2012 by jackrasmus

Late last week, the financial markets were rocked with the announcement that the biggest, and heretofore assumed most stable US bank, J.P. Morgan, lost $2 billion in recent months. The $2 billion was especially of concern, since it was the outcome of what is euphemistically called ‘trading’ by the industry – a term which more accurately should be called by its true nomenclature: speculation in high risk financial securities. In other words, the kind of investing that set off the previous global financial crisis in 2007. The $2 billion losses were apparently attributed to derivatives trading, specifically ‘credit default swaps’, a particularly volatile form of derivatives.

But what is more serious than just the $2 billion in losses by J.P. Morgan is that the loss is likely just a tip of the iceberg. More news of losses is undoubtedly yet to come. And it probably won’t be limited just to J.P. Morgan. Other investment banks (Morgan Stanley, Goldman-Sachs, as well as various Euro investment bank counterparts) are also likely in a similar position. Hardly noticed last week when the J.P. Morgan news broke, for example, was the almost simultaneous announcement that one of the big three French banks, Credit Agricole, had a 75% drop in revenues.

What has also been conspicuously missing in most public commentary thus far concerning the J.P. Morgan losses is what is the source of the $2 billion derivatives-credit default swap losses? What specific speculative CDS trades lay behind the $2 billion? Was it speculation in global commodities – which have recently gone bust? Was it gold futures speculation? Oil futures insurance contracts? Or perhaps European periphery states’ (Greece, Spain, Portugal, Italy, Ireland, Latvian, etc.) sovereign debt CDSs? Or was it CDS ‘bets’ placed in US markets or Brazilian or other currencies? European securities speculation is the most likely source, given that J.P. Morgan’s big trader – sometimes called the ‘London Whale’ appears responsible for much of the $2 billion in losses.

It has been generally under-reported by the US press, but banks all across Europe are contracting their lending sharply. Is that because of Greece? Spain? Or does that story have something similar to do with the J.P. Morgan losses? Whatever, the contraction in bank lending now accelerating in Europe all but guarantees that the Euro recession now underway will be more deep and protracted than official forecasts. The Euro banks are in serious trouble. Continuing austerity policies and deepening recessions across Europe – and bona fide depressions now emerging in the southern European periphery – will result in bank problems even more severe than at present over the next twelve months.

The Euro banking problem began to emerge late last year, 2011. However, it was temporarily postponed by the European Central Bank, the ECB, pumping trillions of Euros (worth roughly $1.30 each) into the Euro banks. This has served to buy the Euro banks some time, measured in months not years, so that the major European governments, led by Germany and France, together with their bankers can come up with a more generous and longer term bank bailout program. Europe is not in a sovereign debt crisis. The real crisis lies more fundamentally in the Euro banking and monetary systems. The southern tier states—and soon others in the north—have a sovereign debt crisis only because the banks, the northern banks especially, pumped vast sums into the southern tier economies over the past decade.

The north did so not for altruistic reasons, but to make money off of booming southern real estate speculation. As the southern tier economies’ GDP surged due to a false, speculative driven real estate boom, the northern banks lent even more to governments to help build out those economies’ infrastructure to accommodate the real estate boom. Some of that secondary lending was distributed by their governments to the rest of their society in the form of social spending. So the ‘sovereign debt crisis’ created is really secondary to the real-estate driven speculative investment boom ‘gone bad’. Sound familiar to all you US folks? Real estate speculation driving banking crises and government deficits and debt?

What happened with J.P. Morgan last week—and is still yet to happen further with J.P. as well as with other US banks—also shows how deeply the US banking system is integrated with the European. J.P’s losses are Euro-centered, speculation driven, and CDS and other derivatives based.

That means what’s been happening in Europe and its banking system is not isolated from the U.S. banks. Today’s emerging European bank crisis—the second globally since the first in 2007-09 centered in the U.S.—will have a significant impact on the U.S. And it follows that if a second banking crisis emerges on both sides of the Atlantic, a second general recession will follow on both sides as well. The European side has already begun. European economies are already well down the road of that recession. And there’s no way the U.S. economy, despite all the false hype about another recovery now occurring in the U.S. (the third such since 2009), cannot avoid a further downturn as well.

The Euro bank crisis has begun to spread its contagion to the U.S. banking system, as last week’s J.P. Morgan losses—centered in Europe and in the latter’s speculative markets—now clearly shows. Watch for more bad news to come on both sides of the Atlantic.

The roots of the two banking crises are similar. In the U.S. in 2007 it was speculative excesses that brought down the ‘shadow banks’ first, in particular the investment banks and insurance ‘banks’, like AIG, Bear Stearns, Lehman Brothers. But the big commercial banks were linked by derivatives speculation with their ‘shadow’ cousins. They too were dragged down, as was the almost entire financial system in the U.S. Lending to non-banks and consumers collapsed, as then did the rest of the economy.

The solutions introduced to the 2007-09 banking crisis by the U.S. Federal Reserve, the central bank of the U.S., and the Obama administration in 2009, did not resolve the fundamental problem of US bank instability. Massive amounts of bank ‘bad assets’ still remain on U.S. banks’ balance sheets. The Obama-Fed solution in 2009 was not the outcome of the then official programs introduced by the Obama administration to bail out the banks in 2009—i.e. the PIPP, TALF, and HAMP programs. Those programs were dead on arrival within a few months. The solution in 2009 was the Federal Reserve’s pumping of $9 trillion in liquidity injections into the banks, to offset the banks’ massive balance sheet losses. But the bad assets were not removed thereby. The black hole of losses was merely temporarily filled up by the Fed’s injection of trillions. That was supposed to result in the banks’ lending to non-bank businesses once again. But they didn’t. And they still aren’t, except for only the very largest and stable companies. Small and medium enterprises are still starving for funds. Investment and hiring is still a dribble and much less than the anticipated traditional ‘trickle down’.

The real program to bail out the banks in 2009 by the Obama administration also included a series of phony ‘stress tests’ to convince the public the banks were now ok. That was designed to get the public to buy bank stocks and restore badly needed bank capitalization. Congress and the administration then further allowed the banks to falsely report their balance sheet results, by suspending ‘mark-to-market’ accounting (true market value of assets) and by letting the banks falsely report their real financial situation. Not least, the administration and the Fed then allowed the banks to turn to speculative investing once again, in particular derivatives and other risky financial instruments—all at the same time they were promoting financial “regulatory reform.”

Last week’s J.P. Morgan loss is the inevitable consequence of the phony 2009 bailout of the US banks by the Fed and the Obama administration (and the even phonier Dodd-Frank financial regulation Act that followed). J.P. Morgan clearly illustrates the consequences of the Fed’s $9 trillion injection of free money into the banks, the phony stress tests that covered up the real situation, and the giving of free rein to the banks to engage in high risk speculative investment in CDSs and other financial instruments.

Initially derided by the Europeans back in 2009-10, the same U.S. bailout approach has been followed in Europe since 2010. After having initially described the U.S. Federal Reserve’s ‘bank stress tests’ of 2009 as “a joke”, Europeans have followed suit with similar cover-ups of the true conditions of their banks in 2011. The European Central Bank, ECB, subsequently followed in the footsteps of the U.S. Fed last year and started pumping trillions in liquidity injections, free money well below market rates, into their banks in order to try to buy time until a larger collective Euro bailout plan was developed. That plan, however, is being rolled out piecemeal and is still not fully defined or implemented.

The Federal Reserve’s policy of injecting trillions of dollars of ‘free money’ into the banking system in the U.S. is called ‘quantitative easing’(QE). It has had two and a half iterations thus far, with a third on the horizon as the US economy weakens. However, the Fed’s QE policy has not resulted in a sustained recovery of the U.S. economy. All that the Fed’s QE programs have accomplished has been to provide free money to the banks (at 0.1% borrowing rates). The banks borrowed the free money, or were paid full purchase price by the Fed on their market devalued bonds. Banks then took the free money and mostly lent it to speculators like Hedge Funds, or speculated themselves directly, in credit default swaps and other derivatives, in foreign currency markets, in commodities markets, etc. In other words, the massive free money bailouts by the US central bank only resulted in even more speculation by the banks. Is anyone surprised finally by J.P. Morgan’s credit default swaps and other speculative losses now emerging?

The ECB has recently gone down the same path as the Fed with its own version of QE to keep the Euro banks from collapsing. But the result will be no different in Europe than it has been in the U.S.: the euro banks may be temporarily ‘bailed out’, but no permanent solution has been undertaken. No real banks’ bad assets have been removed, bank lending to all but speculators and well-heeled big corporations will continue to decline longer term, household consumption in Europe will continue to decline, and all the rest.

Like austerity solutions on the fiscal side, quantitative easing on the monetary side produces no basic long run results and recovery—but to the contrary only makes the economy worse.

Europe is now repeating the errors of US central bank policies since 2008, just as the US after the November elections will, this writer predicts, repeat the European fiscal errors of austerity—that is, deep deficit cutting. The two economies will in turn likely exacerbate each other’s weakening economic condition in 2013.

The real solutions to the parallel failures of fiscal and monetary policies in both the U.S. and in Europe today require basic restructuring of the banking systems in both economies. The solution to the banking crisis—whether in Europe or the U.S.—is not further free money, massive liquidity injections by central banks. The solution is to create a broad ‘utility banking system’ for consumer households and small businesses. The solution is a thorough restructuring of the mission and monetary tools of the central banks and their complete democratization. The solution is not to abolish the Federal Reserve, as simplistic conservative ideology now proposes, but to fully democratize the Fed in order to make it responsive to the needs of Main St. and not an appendage of Wall St.

On the fiscal side, massive fiscal spending is required—financed not from deficits but from a fundamental restructuring of the tax system. But unlike proposals from liberal mainstream economists, it is not sufficient simply to spend more on fiscal stimulus. It is not just a question of magnitude of spending. It is a question of the composition and timing of that spending, as well as measures to remove household debt and regenerate household real incomes once again.

Jack Rasmus, copyright May 2012

Jack is the author of “Obama’s Economy: Recovery for the Few”, released this past April 2012, published by Pluto Books, in which a more detailed critique of fiscal-monetary policies of recent years is undertaken and an ‘Alternative Program’ for recovery is described. His website is http://www.kyklosproductions.com

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U.S. GDP Slowdown & Prospects for Recovery in 2012

May 6, 2012 by jackrasmus

Last Friday, May 4, the U.S. labor department released its jobs numbers for April, confirming a prediction made by this writer this past winter that employment creation would once again slow this spring – for the third time in as many years. Jobs created in April declined to only 120,000, less than half the average monthly gains this past winter. Only days before the release of the April jobs numbers, GDP growth for the US economy as a whole were also released. The fourth quarter GDP growth rate of 3% declined to 2.2% in the first quarter, January-March 2012.  The slowing of the US economy now underway is evident not only from the GDP and jobs data, but from a host of other indicators reported in recent weeks: business spending, durable goods orders, construction activity, services spending, slowing wage growth, to name but the most obvious.

The jobs numbers for April and other economic data thus suggest a continuing slowdown of the US economy has begun in the current second quarter of 2012. That decline will likely continue further in the months immediately ahead, to possibly as low as 1.5% the second quarter, April-June 2012.

The hot air trial balloon floated by the press and pundits this past winter – that the US economy was finally, after a third try in as many years, about to take off on a sustained growth path in 2012 – is thus once again about to deflate.  The US economy remains mired in the stop-go trajectory that has characterized it since early 2009: short shallow rebounds punctuated by brief relapses and slowdowns – a condition and prediction this writer raised nearly three years ago with the publication of the work, Epic Recession, and reiterated last November with a latest work, Obama’s Economy: Recovery for the Few’, just published this April.

Obama’s Fundamental Strategic Error

The partial, stop-go recovery in the US, which has benefited stocks, bonds, corporate profits, CEO pay, and bankers’ bonuses, but virtually nothing else is the direct consequence of failure of fiscal-monetary policies of the Obama administration.  Republican policies, from Reagan to Clinton to GW Bush, caused the economic crash of 2007-09. But Obama policies – policies that favored the banks and corporate America the first two years and then tail-ended teaparty radicals in Congress since 2010 – are clearly responsible for the failure to generate a sustained recovery ‘for all but the few’. Republicans and corporate America clearly created the mess; but Obama and corporate America have clearly failed to clean it up.

Obama policies since 2009 amounted to more than $1.5 trillion in tax cuts that mostly benefited business and investors plus another $1.5 trillion in spending that has been largely subsidies to states.  Less than $100 billion was allocated for long term infrastructure spending, of which only $64 billion has been spent to date. Less than $50 billion was directed to rescuing homeowners and resurrecting the housing sector. Meanwhile, more than $9 trillion was provided in bank bailouts by the US Federal Reserve central bank.

The fundamental strategic error of the three Obama recovery programs since 2009 was to bailout the banks without ensuring that bailout directly result in lending to small and medium businesses; to provide massive tax cuts, mostly for businesses, without any guarantee it would result in immediate business investment and US jobs creation; and to provide subsidies to the states without proof and assurance of job creation.

The Obama strategy was to put a floor under the collapse of consumption for one year, to buy time for the tax cuts and bank lending to get going. After a year, the more than $400 billion in 2009 subsidies spending would be used up, and business (‘the market’) was supposed to take up the slack, to lend, to invest, and to create private sector jobs. The job creation would then reduce the rising foreclosures, restart the housing sector, raise local government tax revenues, and reduce the federal government’s deficit – the major cause of which has been the lack of recovery and tax revenue restoration. It all depended on corporations and banks taking the lead in recovery after a year.

But it didn’t happen that way. Although Obama provided the massive subsidy stimulus for a year, Big Corporations took the tax cuts and sat on them, accumulating a cash hoard of more than $2.5 trillion. Banks in turn took the $9 trillion in zero interest loans from the Federal Reserve, recovered profits, paid themselves bonuses, and either hoarded the remaining more than $1 trillion excess reserves, or lent it to speculators, and loaned it to emerging markets abroad – none of which did anything for small-medium business investing and recovery in 2010 and beyond. In short, Obama’s ‘market’ strategy broke down as banks and big businesses hoarded the bailout.

Obama compounded the problem in a second recovery program in late 2010 that provided another $802 billion in tax cuts only and a mere additional $55 billion more in subsidies. That didn’t work either. In mid 2010, he turned over his jobs creation program to big multinational corporations. That resulted in more corporate tax cuts, new free trade agreements, and more business deregulation that created a dribble of jobs. He then scuttled the States’ efforts to stop the 12 million and still growing foreclosures problem and guaranteed banks’ limited liability for the robo-signing foreclosure scandal. Meanwhile, local governments’ finances continued to deteriorate, as they laid off hundreds of thousands more workers, slashed benefits, cut services, and raised fees.

Instead of taking the ‘bailout to Main St.’ in mid-2010, before the midterm elections, he deferred to his new corporate advisers taken into the White House that summer. The result was a loss of Democrats’ control of Congress in the midterm elections, and a shift in policy in Washington from recovery to deficit cutting. Obama conveniently let the Teapublicans take control of the policy agenda thereafter in 2011, and attempted to compete with them as a still bigger deficit cutter than they by offering to cut social security, Medicare and Medicaid by more than $700 billion.

All past recoveries from recessions in the US were characterized by job creation of 300-400,000 a month for at least six consecutive months; by a robust recovery of the housing sector leading the way; and by local government hiring to offset private sector job loss during the downturns. None of this has happened since 2009. To the contrary, government has taken the lead in job destruction, laying off nearly half a million people; housing has lingered in depression conditions and local governments across the economy continue to layoff, cut services, and raise taxes.

It is not surprising, therefore, that US recovery has been an anemic ‘stop-go’ affair. Late in 2011 a still third feeble ‘rebound’ began to occur, as evidenced in GDP statistics for that quarter. But what lay behind those fourth quarter stats? What followed in the first quarter 2012? And what may we look forward to, especially after the November elections?

The Over-Estimated Fourth Quarter 2011 Data

The fourth quarter 2012 GDP number of 3.0% was hyped at the time as a predictor of future accelerating recovery, but a closer inspection of the 3% clearly showed it was built upon temporary factors that could not be sustained – as this writer pointed out in a previous article:

Briefly revisiting those factors showed the following limitation of that 3%. First, a full two thirds of the 3%, or 1.8% of it, was due to business inventory building. This inventory investment was a recouping of third quarter 2011 collapse in inventories. So two thirds of the activity represented delayed prior quarter growth. Second, non-inventory business spending growth in the fourth quarter was 5.2%, but it reflected end of year investment claims of tax cuts that were going to end. Consumption spending was also up. But it was driven by auto sales made possible by auto companies’ year-end deep discounting and nearly free credit to borrowers. In other words, by debt. Credit card debt spending also rose significantly, as banks began throwing cards at customers in a way reminiscent of pre-2007 practices. Not least, non-credit based consumer spending was driven by spending fueled by household dissavings.

A more fundamental, healthy consumer spending trend required real income gains for the bottom 80% households. But that was conspicuously missing. Throughout 2011, wages, the most critical source of household income for the bottom 80%, rose only 1.8% while prices rose 3.5% – continuing the trend of a 10% decline in household income over the decade.

Also on the negative side, government spending at all levels continued to decline in the fourth quarter: Federal spending fell by –6.9% and state and local government by –2.2%, serving as major drags on the economy in the quarter as they had all year long.  It is not surprising that these factors – temporary in character – did not continue into the first quarter of 2012 at the same level.

1st Quarter GDP Data: Further Slowing To Continue

So how did each of these above elements behind the preceding quarter’s 3% growth perform, thus resulting in the decline to 2.2% for January-March 2012?

As predicted, inventories slowed significantly: from contributing two-thirds of the prior quarter’s growth to only 0.59% of the 2.2%, or about a fourth of the latest quarter’s growth. And that contribution will continue to decline in future quarters.

Business spending fell by –2.1% after the prior quarter’s rise of 5.2%.  Commercial building plummeted by –12% and the important equipment and software segment fell to only 1.7%. The only improvement was residential housing. But that was mostly apartment building and driven by highly untypical warm weather conditions.  As far as consumer spending was concerned, the conditions worsened as well. Nearly 50% of all consumer spending was paid for out of dissaving, as the savings rate fell from 4.5% to 3.9% in just one quarter. That kind of spending was, and remains, unsustainable. Auto sales, a major support of spending in the fourth quarter, began to fade by April 2012 as well.  Meanwhile, both federal and state-local government continued their downward trajectory in the first quarter 2012, declining by another –5.6% and –1.2% respectively.  Finally, a new negative element began to appear: manufacturing exports grew more slowly than imports, resulting in an additional decline in GDP that will likely continue into the second quarter as well.

What this overall six month scenario shows is that the US economy is not only NOT on an ascending growth path and recovery in the current election year, but is rather clearly on a descent in terms of economic growth. The factors that produced a very modest fourth quarter 3% GDP growth clearly weakened across the board in the first quarter 2012. They will mostly continue to weaken into the second.

Meanwhile, the Obama administration’s primary reliance on Manufacturing and exports to drive the US economy toward recovery are beginning to weaken. With the slowing global economy in Europe and even China and elsewhere, exports will not drive manufacturing any more than manufacturing is capable of driving the US economy. Manufacturing represents barely more than a tenth of the US economy and accounts for only 11.8 million out of 154 million jobs. Manufacturing jobs and manufacturing share of the economy, moreover, has not grown at all for the past decade. Since putting General Electric Corp’s CEO, Jeff Immelt, in charge of his manufacturing and jobs recovery programs two years ago, Obama has given Immelt and friends everything they’ve asked for: new free trade agreements, new tax cuts, backing off of foreign profits tax reform, patent protections, business deregulation, etc.. In return, manufacturing has added less than 15,000 jobs a month on average since mid-2010 and many of those jobs at half pay and no benefits.

During this past winter, press and pundits were not only arguing the US economy was on a sustained growth path, but that the US was about to lead the global economy to sustained recovery as well.  Forget the obvious facts at the time of an emerging recession in Europe or a slowing of the Chinese, Brazilian and Indian economies. Europe, they predicted, would experience a historically mild downturn. And the Chinese, Brazilian and Indian economies would experience a ‘soft landing’. In recent weeks, however, it appears the Eurozone is headed from a deeper, more serious recession and the Chinese and other BRICS economies are headed for a ‘hard landing’ rather than soft.

Events and conditions unfolding the last nine months are showing China and the BRICS economies have proven unable to ‘decouple’ from the continuing global economic crisis that is still far from over.  So too will the US economy prove unable to grow – i.e. ‘decouple’ – while the Eurozone descends into a serious contraction and the BRICS slow faster than anticipated. ‘Decoupling’ of any economy from the global, dominant trends is ultimately impossible. GDP stats in the US may go up and down for the remainder of the year over the short term, but the long term trend is toward a further ‘stop-go’ trajectory and a continued ‘bouncing along the bottom’ in terms of economic recovery.

As a consequence, Obama may be headed toward a repeat of the ‘Jimmy Carter Effect’. Carter failed to resolve another major economic crisis in the 1970s. He too turned toward corporate support and policies after 1978.  Corporate America took his handouts, turned on him, and dumped him in 1980.  Reagan did not ‘win’ the election; Carter lost it. Should GDP and economic recovery continue to falter in 2012, Obama may well end up repeating history.  If so, however, he will have lost not in 2012, but in policies introduced (and not introduced) in 2010 – when he made a deeper turn toward corporate influence instead of turning to extend the bailout and recovery to Main St.

Jack Rasmus

Jack is the author of the April 2012 book, OBAMA’s ECONOMY: RECOVERY FOR THE FEW, Pluto Books and Palgrave-Macmillan, available now in bookstores, online, and from the writer’s website at discount at: www.kyklosproductions.com. His blog is jackrasmus.com

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My New Book: OBAMA’s ECONOMY: RECOVERY FOR THE FEW, now available

April 18, 2012 by jackrasmus

COMMENTARY: The following short piece is the summary-abstract of the author’s new book, OBAMA’S ECONOMY: RECOVERY FOR THE FEW, the Table of Contents of the Book, and early endorsements by senior labor leaders in the USA. The book may be purchased at the author’s website front page, accessible from this blog’s sidebar, at discount via Paypal credit card payment. The book is also available online, and may be purchased in the USA from the distributor, Palgrave-Macmillan, and from the Publisher, Pluto Books, in the U.K for rest of world locations. It may also appear in local bookstores.

THE FOLLOWING ARE THE SHORT ABSTRACT-SUMMARY OF THE BOOK, THE BOOK TABLE OF CONTENTS, AND EARLY ENDORSEMENTS BY THREE SENIOR UNION LEADERS IN THE USA.

BOOK ABSTRACT

OBAMA’s ECONOMY: RECOVERY FOR THE FEW, by Jack Rasmus, Published by Pluto Press and Palgrave-Macmillan, April 2012, 190 pp., $24.95.

By Dr. Jack Rasmus

After a $9 trillion bailout of banks and financial institutions by the U.S. Federal Reserve, and more than $3 trillion in fiscal stimulus by Congress and the Obama administration, nearly four years after the onset of recession the U.S. economy is still mired in the weakest, and most lopsided, economic recovery since 1947. U.S. stock markets have risen more than 100%, corporate profits have exceeded 2007 levels, CEO pay and bankers’ bonuses have once again returned to pre-recession levels, the largest U.S. companies continue to hoard $2.5 trillion in cash, and banks dribble out loans to small businesses. In contrast, more than 23 million American workers remain jobless or underemployed, home foreclosures exceed 12 million, 15 million homeowners struggle with negative equity, income growth for 80% of households continues to stagnate at best, while state and local governments lay off workers and teachers by the hundreds of thousands, cut services, and raise taxes.

This book explains how the weakest and most lopsided economic recovery since 1947 has been the direct result of the failed economic policies of the Obama administration and the U.S. Federal Reserve. The book provides seven specific reasons—not just insufficient fiscal stimulus argued by liberals—that explain why recovery programs under Obama’s first term in office have failed to generate sustained economic growth. Tracing the evolution of Obama policies from his presidential election campaign in 2008 through the passage of his 2012 budget, the book explains how the US economy got where it is today and continues on a ‘stop-go’ trajectory of short, shallow relapses followed by weak and unsustained recoveries. A sequel to this writer’s previous 2010 book, Epic Recession: Prelude to Global Depression, this book, Obama’s Economy, argues and shows, based on extensive data, why the U.S. economy will once again suffer a ‘third relapse’, or a worse double dip recession, in 2013.

The book concludes by offering an ‘Alternative Program for Economic Recovery’ to the policies of the past four years, which focuses on jobs, housing, and local government immediately, and by introducing concurrent major structural economic reforms targeting the tax system, retirement system, and banking systems in the U.S. The ‘Alternative Program’ concludes with proposals for fundamental, longer term change necessary to reduce household, small business, and State-Local government debt and to restore historic rates of income growth for working and middle class households.

TABLE OF CONTENTS

OBAMA’S ECONOMY:
RECOVERY FOR THE FEW
Jack Rasmus
Copyright 2011

INTRODUCTION: A Systemic Crisis of Recovery
Subtitle: ‘The Wasted $12 Trillion’

Chapter 1: The Weakest, Most Lopsided Recovery
Subtitle: ‘Who Recovered, Who Didn’t, and Why?’

Chapter 2: From Tax Cuts to Tactical Populism
Subtitle: ‘Obama’s 2008 Campaign Promises’

Chapter 3: Obama’s Jobless-Homeless Stimulus
Subtitle: ‘The 1st Economic Recovery Program (2009)’

Chapter 4: A Record Short, Faltering Recovery
Subtitle: ‘The 1st Economic Relapse of 2010’

Chapter 5: How More Is Less of the Same
Subtitle: ‘The 2nd Economic Recovery Program (2010)’

Chapter 6: Historical Parallels and the Midterm Elections
Subtitle: ‘Obama as Franklin Roosevelt or Jimmy Carter?’

Chapter 7: Deficit Cutting on the Road to Double Dip
Subtitle: ‘Economic Recovery Policy in Reverse’

Chapter 8: Sliding Toward Global Depression?
Subtitle: ‘The 2nd Economic Relapse of 2011’

Chapter 9: From Failed Recovery to Austerity Recession
Subtitle: ‘The 3rd Economic Recovery Program (2011)’

Chapter 10: An Alternative Program for Economic Recovery
Subtitle: ‘Fundamentals of Economic Restructuring for the 21st Century’

Editorial Reviews:
Obama’s Economy: Recovery for the Few
By Jack Rasmus

Reviews

“Jack Rasmus has written in Obama’s Economy: Recovery for the Few a revealing exposé of Barack Obama’s economic policies since 2008. Explaining in detail why Obama’s programs have failed to generate an economic recovery for all but big bankers, corporations, speculations, and the 1% wealthiest households, Rasmus predicts more of the same economic stagnation, or perhaps worse, by 2013 if current economic policies continue. Rasmus concludes the book with his own detailed ‘Alternative Program for Economic Recovery.’ It is time to seriously begin public discussion and debate of economic alternatives to the past four years, which Rasmus’s book clearly has begun.”

– Nancy Wohlforth, Co-Convenor, U.S. Labor Against the War

“Obama was elected because he represented hope and the expectation of change. But as Jack Rasmus details in Obama’s Economy: Recovery for the Few, little changed for tens of millions of unemployed, homeowners, and those dependant on local government services for whom economic recovery has been anemic to non-existent the past four years. Rasmus describes in detail how Obama was the most conservative and business oriented of the Democratic candidates in 2008, and how his first term economic policies reflected that pro-business orientation.”

– Chuck Mack, Former International Vice-President, International Brotherhood of Teamsters Union

“Jack Rasmus in his new book, Obama’s Economy: Recovery for the Few, connects the dots and gives new meaning to common sense economics. While working people reel in the downward spiraling economy, Rasmus analyzes how we got where we are and makes recommendations for sustained economic growth and recovery. It’s the kind of reading that makes every leader stop and say ‘Wow! That makes perfect sense. Why didn’t I think of that?’ Then ask yourself, ‘Why wouldn’t our President think of that?’ When you’ve read the book I’m confident that you will conclude that Rasmus has done a brilliant job of defining the impact of the Obama policies and decisions to this continued economic crisis.”

– Donna DeWitt, President, South Carolina AFL-CIO

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