Jack Rasmus

COMMENTARY: On September 8 Obama proposed to Congress his ‘fourth program’ in as many years to get the economy going and create jobs for the 25 million who have remained unemployed since he entered office. The latest Jobs Proposal, which should be renamed the ‘Business Tax Expansion Act of 2011’, will cost $447 billion–about half of what has been spent to date on economic stimulus programs since 2009. The latest proposals repeat the reasons why Obama’s prior recovery programs have failed to produce jobs: poor composition (too much tax cuts), bad timing (long term infrastructure spending), and too little in terms of magnitude of spending. Obama’s latest jobs proposal will prove no more effective in creating jobs than his prior proposals. What it will do is give an entry for business and Republican interests to take the tax cut proposals and drive them deeper, giving corporate America even more tax cuts. Meanwhile, Obama is now being led by the nose on two corporate agenda priorities: deficit cutting and more tax cuts. What’s needed is jobs now, that is possible only by direct government job creation patterned on a 21st century Works Progress Administration (WPA) of the 1930s–paid for by a major tax restructuring to take back the trillions the wealthiest households, investors, and corporations have diverted to themselves.

“Obama’s ‘Jobs Act’: Why Less is More of the Same” by Jack Rasmus, September 9, 2011

Last night President Obama proposed a $447 billion Jobs Act. What we got from Obama was a 2009 Stimulus Light proposal, with all the problems of the prior 2009 stimulus package in the form of inadequate magnitude of spending, wrong composition and targets, and bad timing.

First, on the matter of the magnitude of spending in the proposal. Some think it was bold. But put it in context. $447 billion just wont achieve the job creation it claims. Its once again too little for an economy the size of the US, for an economy in as deep an economic hole as it is, and in an economy facing growing downward momentum at home in the context of a global economy also rapidly slipping.

In February 2009 President Obama proposed $787 billion in economic stimulus. Unemployment was about 25 million. More than two years later, after the $787 billion has been spent, unemployment (measured by the Labor Departments U-6 rate) is still around 25 million. Why therefore should Obama’s latest proposals to create jobs, consisting about half the size of the 2009 stimulus, expect to create jobs when the larger stimulus did not?

Even more important than Obama’s jobs acts insufficient magnitude, the composition is also seriously deficient–just as was the 2009 stimulus. Like the stimulus in 2009, it is once again overloaded in tax cuts. In fact, a greater percentage (60%) of the total Jobs Act is composed of tax cuts than was the 2009 stimulus (38%). Then, and now, tax cuts simply cannot and will not create jobs, given the kind of epic recession in which the US economy now finds itself entrapped.

The 38% tax cut mix in 2009 amounted to about $300 billion in total tax reduction. That $300 billion followed a $90 billion tax cut less than mine months before in spring 2008. Another $50 billion in tax cuts was further added later in 2009-10 in various bills and administrative actions. That’s a total of $440 billion in tax cuts. There’s more. Add to that $440 billion another $270 billion in Bush tax cut extensions in late 2010 for 2011, plus another $100 billion in this years payroll tax cut. Now add the Job Acts tax-heavy $270 additional billion. Now were well over a $1 trillion in tax cuts in just the past two years. And whats been the result in jobs? Still 25 million unemployed today as in June 2009.

If someone needs still further evidence that tax cuts dont create jobs in todays environment, just step back a decade. In 2001-04 George W. Bush passed another $3 trillion in tax cuts, overwhelmingly biased again toward the rich and their corporations in the form of capital gains, dividends, inheritance, business depreciation, and other corporate largesse. Over 80% of the $3 trillion went to the wealthiest 20% households and most of that to the wealthiest 5% and 1%. And what kind of job creation resulted? We had the longest jobless recession in US history up to that point. It took 46 months just to recover to the level of jobs we had before the first Bush recession in 2001.

Furthermore, most of the jobs that were created under Bush were in the Finance and Housing sectors of the economy at the time, which were both undergoing a boom due to speculative excesses before an eventual bust. The jobs mostly created in Finance and Housing had little to do with Bush’s tax cuts of 2001-04, however. Instead, millions of jobs were being lost in manufacturing while the tax cuts were taking effect last decade.

In 2004 Bush also pushed through a bill to allow multinational corporations to repatriate their then $700 billion hoard of cash they were keeping offshore in their subsidiaries in order to avoid paying the US 35% corporate tax rate. The multinationals blackmailed Congress to let them pay only 5.25% instead of 35%. In exchange, they said they’d bring back the money (saving 29.75% for themselves) and use it to create jobs. Did they? No. They money brought back was used to buy back their stock, payout more dividends, and to use for mergers and acquisitions that in fact resulted in fewer jobs. Now the same game is being proposed in Congress, except this time their offshore cash hoard is $1.2 trillion.

The historical record of the past decade is clear: tax cuts simply don’t create jobs, especially tax cuts for the rich and corporations. So why has Obama given them $1 trillion in tax cuts the past two years and is now proposing more?

Neither Bush nor Obama policies of tax cuts have created jobs. Big corporations today are sitting on a cash hoard of $2 trilliona result in large part of the nearly $1 trillion in tax cuts of the past two yearsand they arent using it to create jobs. How much more will Corporate America have to be given in tax cuts to finally create jobs? Will another $1 trillion do it? $500 billion? Will the roughly additional $270 billion proposed by Obama yesterday suffice? Whats the magic number in more tax cuts that will finally result in job creation?

But the tax-heavy proposal once again by Obama is not the only problem with his Jobs Act. The Jobs Act shares another similar deficiency with the Presidents prior 2009 stimulus. Its too heavily weighted as well in favor of subsidies to the states. The 2009 stimulus provided $263 billion in subsidies to the states. It was supposed to create jobs. It didn’t. Local government laid off hundreds of thousands of workers since June 2009 despite the $263 billion. What guarantees are there that wont be repeated this when they’re given the added subsidies? Will they get the subsidy only if they first prove they’ve added the jobs? Don’t count on it.

Another problem with the composition of yesterdays Jobs Act announcement by the President is it once again repeats the promise of the 2009 stimulus that infrastructure spending will quickly create jobs. In 2009 about $100 billion was allocated to infrastructure related spending that was supposed to create 4 million jobs. That didn’t happen. There were 6.4 million construction workers employed in June 2009. There are 5.5 million today. Nearly a million fewer construction jobs was the result. There just weren’t as many shovel-ready jobs as was claimed. Construction and infrastructure jobs are long term. What is needed today is immediate job creation. Infrastructure programs just wont cut it. Especially when of the minimal magnitude in Obama’s recent proposal.

Obama yesterday promised his proposals would focus on small business by subsidizing their hiring of workers for each job they create. But for small business to create jobs it needs more than a partial hiring subsidy. It needs funds in addition to cover all the other costs of production. For that small business needs bank loans. And for two years now they just cant get the loans from the big banks. Bank lending to small business declined for 15 consecutive months after June 2009 and its not much better today. Obama and the Federal Reserve bailed out the big banks to the tune of $9 trillion in recent years, in the expectation they would start lending. They didn’t. They still are’nt. Like the big corporations hoarding their $2 trillion and not creating jobs, the big banks are hoarding their cash reserves as well and lending to small business that might create jobs if they could get the loans. Obama would have done better to propose the Federal government bypass the banks and directly loan to small business at 0.25%. After all, that’s the interest rate at which the Fed today loans to the big banks? No, I take that back. Actually its only 0.1%, and then the Fed pays the banks 3% to temporarily park the free money with the Fed in the interim. What a deal: the Fed pays the big banks to take its free money.

In summary, what we got from Obama’s Jobs Act last night was more of the same in terms of poor composition (i.e. excessively tax cut heavy), poor timing (long term infrastructure projects), and too little magnitude spending in any event.

Theres no reason to believe that the Obama jobs package that repeats the problems of poor composition and bad timing of the 2009 stimulus–which didn’ t create jobs–is going to do any better when its also half the size of the stimulus.

Of course, the proposed Jobs Act wont pass anyway because the Teapublicans will oppose it. At best, they might try to cherry-pick out the business tax cuts proposed by Obama, and then add even more tax cuts to the Jobs Act–a proposal which anyway should be appropriate renamed The Business Tax Expansion Act of 2011.

Just a day before the presidents address, the Teapublican candidates gathered to hold their latest debate. They stumbled all over each other to see who could promise Corporate America even greater tax cuts. Rick Perry even promised to end all corporate taxes. Rick Santorum promised to lower capital gains and dividends taxes to zero. Others proposed no income taxes whatsoever for earners of $200,000 income a year. Grovel for those campaign contributions, fellas. These same candidates, after proposing cutting hundreds of billions a year in tax cuts for the rich and corporations, will turn around and cry about the budget deficits and demand equivalent cuts in social security, medicare and Medicaid to make up for their ever-generous handouts to the wealthy.

But this kind of mercenary, Robin-hood in reverse, policy of No taxes whatsoever for the rich and their corporations is expected from the radical right. Yet it seems Obama is being drawn into their tax cut for the rich frenzy with his proposal last night for yet another $270 billion in cuts. He just agreed, less than nine months ago, to give them $270 billion by extending the Bush tax cuts last December. Now hundreds of billions of dollars more. This past year witnessed the Presidents adopting their central agenda demand to cut deficits. Could he now be tailing the Teapublicans once again down the Cut more taxes for Corporate America road as well?

A real job program today would be proposals and programs to re-create, in 21st century form, of a Works Progress Administration–paid for not by giving the rich and their corporations still more tax cuts but by taxing their $2 trillion cash hoard, their $1 trillion in excess free Fed money bank reserves, their $1.2 trillion held in offshore subsidiaries, and by taxing the more than $6 trillion they’ve all stashed away in their tax havens around the globe from the Cayman islands to the Seychelles to Vanuatu and, of course, Switzerland.

Politics in America today sadly is not about what will ensure true economic recovery and give the 25 million Americans a job. Its about how to extend tax cuts for Corporate America and its shareholder beneficiaries; its about how to ensure the Great American Tax Shift of recent decades is never rescinded and instead further extended; and its about how to make everyone else in American pay for their bailouts so that the corporations and wealthiest themselves do not have to.

Jack Rasmus, September 9, 2011

Commentary: While attention is focused on US domestic economic conditions, markets and investors are obsessively focused on the upcoming public speeches by President Obama and Fed Chairman, Ben Bernanke, this coming thursday, September 8, in the hope either, or both, will deliver a magic policy bullet to reverse somehow the trajectory of the US economy toward double dip recession. Meanwhile, the global economy itself continues to unravel and drift toward worldwide economic contraction. What will the effects of each–recent US and global economic developments–have on the other? What will both mean for US stock market and economic volatility this coming friday and the weeks to come? This writer has consistently argued that economists should predict the future, not the present–as most contemporary economists are content to do. So here’s my ‘going out on a limb’ and offering some predictions about the future, in the context of predictions made in the past about the inevitability of a financial crisis in Europe and the global economy.

‘Predicting Global Economic Volatility’ by Jack Rasmus, September 5, 2011

This coming week, September 6-10, may prove one of the most volatile economically and financially since the global banking panic of September 2008both in the US and worldwide.

At the end of last week, stock markets in the US and around the world staggered on the news of the US August jobs report. That report showed zero jobs created last month, according to one of the Labor Departments jobs survey. The same Labor Departments second job survey–the one that didn’t gain much attention in the press–was even worse. It showed more than 212,500 jobs lost. Stocks plummeted.

What was overlooked with the big stock market drop-off at the close of last week was a growing instability in the bond markets, both government and corporate, that has also been emerging. Bond markets are far more important economically than stock markets. They dwarf the size of all world stock markets combined by several magnitudes of trillions of dollars.

Not just government bonds but corporate bonds as well. And not just bond markets in the US but in Europe, where it appears that the most recent bail out of Greece once again is about to collapse, just a few weeks after it was announced. This is the third Greek bailout. Or is it the fourth? Depends on your definition. However defined, the Greek default crises are now coming faster and more furious. There is no way the Eurozone can save Greece now from default and they are just beginning to realize that fact. The key question is, as the French say, ‘apres le deluge, quoi’ (after the fall what/who?)

The bankers and their politicians in Europe, UK and the USA would no doubt prefer to allow Greece simply to leave the Eurozone. But they cant. They are uncertain of its impact on the Euro currency, which would likely collapse below parity with the US dollar. That would wipe out trillions of Euro-denominated securities overnight, a terrifying thought for bondholders and other Euro and global investors. So they stumble along with bailout to bailout for Greece. And the bond markets begin to quiver.

Then there’s Italy and maybe Spain, and maybe even thereafter Belgium and France. If either of the four candidates enter a sovereign-bank crisis, then almost certainly another Lehman-event reminiscent of the crash of the Lehman Brothers investment bank back in 2008 will likely occur.

This was all foreseen by this writer back in late 2009, when the book, Epic Recession: Prelude to Global Depression (Pluto Press and Palgrave May 2010) was completed by this writer. To quote some of my predictions of two years ago:

“The Obama 2009 recovery program will, at best, result in a drawn-out economic stagnation, a period of weak and short recoveries followed by short and shallow declines; i.e. a W shaped or double dip recovery scenario. Or, at worst, will result in an eventual further collapse of the economy following a renewed financial crisis event.”  (Epic Recession: Prelude to Global Depression, p. 314)

Or, the following prediction in January 2010 of a second banking crisis sometime 2011-14:

“The Euro financial system will be shaken in 2010 by one or more defaults on its periphery…The possibility of a second banking crisis and panic in 2011-14 is high.” (Z magazine, January 1, 2010).

A year later, in 2011, this same theme was taken up once again, where this writer predicted further:

“The Eurozone sovereign debt crisis will spread beyond the current four economies (Ireland, Portugal, Spain, Greece) and engulf Italy, Belgium, and potentially (though less likely France)…A restructuring of the EU currency system will result in a kind of two-tier euro currency.” (Z Magazine, January 1, 2011)

And then this past spring,

“The US and other major global economies are once again on the cusp of a significant slowdown. “(Truthout Blog, June 5, 2011)

And two weeks ago,

“The big economic engines of Europe (France, Germany, UK) are all about to tip into recession themselves in the coming quarter. ..If Italy, or even Spain, are among the two (Euro sovereign defaults), it is almost certain one or more French or Swiss Banks will become the next Lehman.” (Znet blog, August 29, 2011)

The coming week of September 5-10 may prove to be the most economically volatile in some time. In the Eurozone, unions are finally stirring in Italy. The reason: Prime Minister Berlusconi’s austerity package was abruptly changed after promises made to labor to include austerity for all, including the wealthy. Their taxes were to be raised. Then he reneged. No tax increases for the rich, but austerity for workers and the rest. Understandably the Italian workers felt betrayed. Promises of sharing of equal sacrifices were shown to be a sham. Berlusconi was no doubt told by his rich supporters he had to change the terms over the weekend.

This backtracking by Berlusconi reveals the central fundamental issue in all the austerity programs being launched across the globe–in the US (called deficit cutting here) and Europe. These programs are fundamentally about two things:

First, imposing austerity is so that bondholders and their banks don’t have to take any losses. Make the people pay for the bailouts of those same banks and investors who, by the way, caused the crisis in the first place. Banks and bondholders refuse to take any losses.

Second, austerity means cutting social programs, wages, benefits only–without any tax hikes. In other words, once again, make everyone else pay but dont touch the tax cuts of the rich. That was clear in Berlusconi’s reversal over the weekend. Its also abundantly obvious in US Republican and Teaparty politicians refusal to accept any form of tax hike for the rich and corporations. Austerity is for the bottom 95% households; not for the top 5%.

So watch Italy this week, the Italian unions, and the rest of the Eurozone bondholders and banks. Watch Greece. Watch what happens in the capitols of Paris, Berlin, and London in response to coming events this week. As that crisis deepens in Europe this week and next, the financial instability will deepen further in Europe. It will have repercussions for US stock and bond markets, without a doubt. Stock market swings of 300-500 points a day will occur in response, in part, to the Eurozone crisis.

The Eurozone crisis comes at an inopportune time, as instability in the US also ratchets up this week for domestic reasons. All ears are on what Obama will announce on Thursday, September 8. But dont hold your breathe. It will prove under-whelming. And the markets will react accordingly.

The President will rummage into his policy bag of two years ago, dust off what he didn’t offer then, and announce it later this week–just about when the crisis in Europe intensifies. What were likely to see are: an infrastructure bank financed by private interests, more tax cuts for business, more deregulation of business, more payroll tax cuts, call to conclude new free trade agreements. In short, the stuff his corporate advisers have been recommending to him.

How the stock and bond markets will react this week to the deepening Euro crisis and to the Obama jobs proposals will prove interesting. How bank stocks respond will be especially interesting. Already Bank of America and Citigroup, two of the biggest, are experiencing a freefall in their stock price. Both banks have been technically insolvent for the past two years. The upheaval in Europe and US domestic events may push their stock prices down further, to low single digit levels. That collapse in their capitalization means eventually the need for more bailouts.

If stocks tank at this coming Friday after Obama’s jobs announcement, or earlier due to the Euro-Italy-Greece crisis, all eyes will then turn to the Federal Reserve once again in the mistaken hope it can prevent the economy from sinking further. Investors will expect another Quantitative Easing (QE) program. But this time they may not get the money injection they expect. The Fed has an internal revolt of its own now underway. At best it may provide a QE 2.5, which will boost stocks a little for a short while. But that will soon fade as well, as the stock markets realize there is no further injection of hundreds of billions of dollars coming from the Fed this time around. The last short-lived stock boomlet of earlier this year was driven largely by the Feds preceding QE2, initiated last October 2010 and concluded this past June 2011. It pumped up stocks and commodities speculation in oil, metals, cotton, food grains, which has translated into rising gasoline and food prices for the general consumer and falling real wages in turn. But QE2 did nothing for housing or jobs recovery. The same results can be expected from any new version of QE 2.5 as well.

Capitalist policymakers from Washington to Berlin to Paris to Rome are fast running out of policy bullets to contain a crisis that is once again beginning to show early signs of spinning out of control. The bullets to date have aimed only at social programs, wages, benefits, and John Q. Taxpayer. None have been intended for bondholders, investors, bankers, or big multinational corporations. All austerity programs to day everywhere–US, Europe, etc., have targeted everyone but the bond holdings of the rich, their tax rates, loopholes, and tax havens, or their record accumulated cash on hand. That may soon prove impossible to continue.

How soon their privileged exclusion from paying for the crisis depends on how much those targeted–workers, consumers, unions–resist and how hard they push back. Perhaps what happens in Italy and Italian unions this coming week will be an early sign.

There are only three ways to resolve the global financial crisis with its mountain of bank, corporate, and government debt. One is to grow out of the crisis. But economic growth is not on the horizon. In fact, quite the opposite. The second is to squeeze the taxpayer, the worker, the consumer, the retiree and make them pay. But that just may radicalize folks and push them out of the electoral orbit of the dominant political parties and into the arms of the new parties that challenge their old control. The third is to make the bond and debt holders take their losses, expunge their debt, pay them the pennies on the dollar their bad assets are worth, or none at all, and move on. The latter, third option is the quickest and most certain. But investors, wealthy, bondholders, and corporations will fight to the finish to prevent it.

Its all about who pays. Austerity solutions mean the rich get to keep their tax cuts and the rest have to pay the bill for their excesses that caused the crisis. Austerity never resolved a financial or economic crisis, however. It only makes it worse. Just look at Greece today.  Italy and Eurozone tomorrow.  And USA thereafter.

In the meantime, get ready for an economic volatility roller-coaster this coming week and the weeks and months immediately ahead.

Jack Rasmus
September 5, 2011

Commentary: The following is an analysis this labor day of last friday’s August Employment Report by the US Labor Department. Most press accounts of the report focus solely on the more conservative ‘Establishment Report’ Survey (CES) by the US Labor Department, including last friday’s. It showed a zero increase in jobs last month. But the CES ‘zero’ is the best of the job indicators, not the worst. The more accurate Current Population Survey, CPS, jobs report released simultaneously with the CES report showed much worse data concerning jobs. The CPS covers small business much better than the CES, which is over-represented by large businesses. Large corps may not be creating jobs, but smaller businesses–the source of more than half of jobs created or lost–are showing more job losses. The following shows how, and gives a preview of Obama’s likely ‘jobs initiatives’ in his speech later this week–his ‘fourth’ jobs plan announcement since taking office. But don’t hold your breathe. This latest won’t be any more successful than the previous programs in creating jobs.

‘August Jobs–Worst Than Zero’ by Jack Rasmus, copyright 2011

Last Friday, September 2, 2011, the latest jobs report was released by the US Labor Department. It showed no jobs created for the month of August. Zero. Zip. The report confirmed the growing evidence that the US economy was on a track toward a serious economic relapse, at minimum, or a possible even worse double dip recession. The stock market went into another tailspin. Bond markets globally reeled.

Those trying to downplay the August jobs report noted the August numbers included 45,000 Verizon telephone workers who were on strike and who subsequently have returned to work. That would mean, apologists argued, there were actually 45,000 jobs created last month. Big deal. It takes 150,000 new jobs a month just to absorb new entrants into the labor force.

It is important also to note that the zero number was the very best of the various job numbers that might have been reported, not the worst. Other data show the August jobs situation was not stagnant, with no jobs created, but actually much worse. Here’s why.

The zero jobs number for August is taken from just one of the two Labor Department jobs surveys–what is called the Current Establishment Survey (CES) which focuses mostly on large companies and doesn’t pick up smaller companies very well, where more than half of all jobs are either created or lost. The other Labor Department jobs survey, the Current Population Survey (CPS), is typically not mentioned in the press commentary on the jobs situation. That was true last August once again. The CPS, however, is a more accurate reflection of the condition of jobs today, Labor Day, June 5 in the U.S.

The CPS shows, for example, how many workers are leaving the labor force because they cant find jobs. The CPS also shows a truer more accurate unemployment rate, called the U-6 rate, which includes jobless workers that are discouraged or missing from the labor force and workers being converted from full time jobs to involuntary part time jobs. It also shows the duration of the long term unemployed. In short, it provides a deeper and more comprehensive picture of the condition of jobs in the U.S. last month

So, lets look at just a few of the interesting facts about August jobs from the CPS survey for last month.

To begin with, in August an alarming additional 430,000 workers were hired as involuntary part timers, bringing their total to more than 8.8 million. That sharp rise in involuntary part time work means several things. First, it means employers are reducing workers on full time status to half time status in growing numbers. That conversion of full time to part time work typically represents the first step many companies take before reverting to direct layoffs in greater numbers. A huge increase in part time jobs occurred in 2008, as a prelude to eventual massive layoffs that followed. Last months major rise in part time employment, in other words, may just be the canary in the mineshaft indicating mass layoffs to come in a few more months.

Second, the rise of 430,000 part time jobs represents an actual reduction of up to 215,000 jobs, as hundreds of thousands of workers are converted from full time to part time work involuntarily. The August job numbers were therefore less than zero–i.e. up to a loss of potentially 215,000 jobs. It s not that no jobs were created in August. More accurately, up to 215,000 jobs were lost in August.

Third, last months jobs data also showed a growing dangerous trend. Over the last three months there has been a significant rise in the number of discouraged and marginally attached workers in the labor force. In fact, 266,000 have left the labor force the past three months alone–in addition to the 430,000 converted to part time work last month.

Rising numbers of discouraged workers leaving the labor force is often the first sign of a deteriorating labor market and more actual layoffs to come down the road. In addition, rising numbers of involuntary part time work is often the next, further indication of coming layoffs as companies convert full time to part time jobs as an interim step to full layoffs about to occur in the near future.

Thus, these two indicators–rising discouraged workers numbers and rising part time employment–are both canaries singing in the mineshaft, i.e. giving off warnings of worst to come in direct layoffs. And both are getting worse.

Both the discouraged and involuntary part time numbers are reflected in the Labor Departments more accurate U-6 unemployment rate that isn’t often reported by the press, which always de-emphasizes the severity of the jobless situation by referring to the more conservative U-3 jobless numbers that ignore the discouraged and part time employment trends.

The more accurate U-6 jobless numbers rose by 212,520 in August. That means instead of Zero jobs created in August, there were actually 212,520 jobs lost in August.

Furthermore, since May 2011 the U-6 jobless numbers have risen by 598,734. In short, nearly 600,000 more workers have become unemployed the past three months alone.

For non-supervisory workers still with jobs this past August, the recent Labor Department shows their average hourly wage and average weekly pay both declined, and that decline was in absolute pay levels–i.e. before even further adjustment downwards to account for inflation. If you were fortunate enough to hold onto your job in August, you nonetheless had a significant reduction in pay.

To summarize, the numbers of importance in the August jobs report are not the Zero jobs growth reported in August. The numbers that reflect the real condition of jobs today are the 212,500 increase in the unemployed; the 430,000 shifted to involuntary part time employment; the escalating number of 598,000 discouraged and marginally attached workers in recent months; and the sharp decline in real pay levels in just one month.

All these numbers are called forward looking–that is all are a harbinger of much worse employment conditions in the months to come. It is important to focus on future indications of trends, not just one month current data like the zero jobs created number reported in the most conservative of the Labor Departments data survey (CES) and U-3 unemployment rate.

In a few days, Obama will address the nation and presumably offer a program for jobs. However, his past track record shows clearly his proposals will likely be more of the same. That means more tax cuts for business in the hope they will create jobs, despite the fact business is now sitting on $2 trillion and refusing to create jobs anyway. So, lets give them a couple hundred billion dollars more and maybe they will change their minds. Obama’s proposals will also likely include some long-term infrastructure job creation, most of which wont take effect until after the next election in order to satisfy the deficit cutters in both political parties. That also wont do much for the jobs crisis now deepening further. Cutting business regulations will purport to represent another way to create jobs, as the presidents current stable of ex-corporate advisers have been demanding. Pass the free trade bills will parade as another false job creation proposal, when it is clear free trade has devastated jobs not created them.

Missing will be the necessary proposal for a 21st Century direct government jobs creation program patterned on the experience of the 1930s Works Progress Administration. Or how to pay for that direct job creation program with a fundamental restructuring of the tax system in the US to make wealthy investors, households, and their corporations pay for it all.

Jack Rasmus
September 5, 2011 (Labor Day)

Jack is the author of the book, Epic Recession: Prelude to Global Depression, by Pluto press and Palgrave-Macmillan, 2010; and the forthcoming Obama’s Economy: Recovery for the Few, same publishers, January 2012. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.

COMMENTARY: The following is an article on the history and evolution of concession bargaining in the US that is perhaps appropriate this labor day 2011. It briefly traces how concession bargaining at the shop level has, since the late 1970s, evolved, transitioned recently to the public sector, and now is morphing into an attack on the ‘social wage’ (social security, medicare, etc.) at the grand ‘political’ level as the economic class war in the US intensifies and moves into every ‘nook and cranny’ of the economy. We are witnessing in Congress and the Obama administration today (political) ‘management’ decisions to cut (social) wages just as for decades corporate management cut wages and benefits at the shop or company level. Of course, it’s the same ‘corporate management’ that has been driving both. Having accomplished much of their concession bargaining goals at the shop level in recent decades, they are now-through their political managers-attempting the same at the social level.

‘Concession Bargaining At the Crossroads’ by Jack Rasmus, copyright August 7, 2011

The history of collective bargaining since the Second World War has consisted of several stages or phases. The first phase was roughly from 1947 to 1979. During it collective bargaining was expanded both in terms of its scope and its magnitude. Scope refers to new areas of bargaining, such as cost of living adjustments, supplemental unemployment benefits, pensions and health care benefits, union and worker rights, etc. Magnitude refers to increasing the dollar value of wages and benefits. Up to 1979 both expanded.

In contrast, from the mid-1970s to 2007, concession bargaining became the growing practice. But it was concession bargaining focused on giving back magnitude gains of the previous decades, not necessarily the scope of bargaining. Workers in the private sector gave ground on wages and benefits in a decades-long attempt to protect their jobs.

First Stages of Concession Bargaining

Among the first to feel the effects were workers in the construction sector, starting in the 1970s. Employers formed early in the decade the Construction Industry Users Roundtable. Its strategy was to undermine the then powerful building trades unions by a new tactic: the double breasted operation. This simply put was a way to undermine the construction unions by setting up parallel, non-union companies. The unions ignored the threat more or less, since the double breasted operations were set up in the suburbs and outlying regions. The urban bastion of unionization in construction wasn’t immediately impacted. Employers progressively then moved jobs and work to the non-union operations. The loss of jobs in the unionized operations eventually forced workers and unions to start granting concessions in an attempt to prevent their work shifting to the non-union companies. Concessions soon expanded. Saving jobs in exchange for givebacks on wages and benefits eventually became the norm.

In the late 1970s the strategy of forcing workers to give up wage and benefit gains to keep their jobs leap-frogged into the manufacturing sector. The pilot and defining event was the Chrysler bailout of 1979. It worked so well the model was planned for application to manufacturing in general. By then the Construction Industry Users Roundtable had expanded into what is now known as perhaps the most formidable and effective Big Business organization today, the Business Roundtable. Big manufacturing and service companies joined with the Construction employers. The construction industry union-busting model was transported to other sectors of the economy.

The tactic of double breasted operations took on a new form. Alternative union-free operations were set up. But not across town, as in construction. It was now across borders. The manufacturing analog of the double breasted operation was the runaway shop, as manufacturers moved operations offshore.

In this they were aided by the most pro-business President since Coolidge–Ronald Reagan–and a compliant Congress.  Manufacturers were provided generous economic incentives to set up offshore. Tax incentives were generously granted. Deregulation was introduced. Then in 1988 and 1993 free trade agreements were established with Canada and Mexico to facilitate the movement of US capital to those countries to set up operations. Free trade is not just about export-import of goods and services; it is even more about negotiating favorable conditions for US foreign direct investment in those countries. Tax for investing offshore plus free trade plus deregulation devastated jobs in the US beginning in the early 1980s, and continuing ever since. Under pressure of losing jobs, workers in manufacturing began the long, dead-end road toward concession bargaining in an attempt to save their jobs. But it didn’t. More than 10 million jobs have been offshored ever since.

The pressure to grant wage concessions intensified in the 1990s. In addition to the threat of job loss, now escalating double-digit annual increases in health care costs provided a second hammer. That ushered in what was called maintenance of benefits bargaining. Now desperate to maintain their health care coverage, workers now gave up more wages in exchange for keeping health benefits. But that too did not last long. Health care cost shifting accelerated by 2000 and into the next decade.

To assist in paying for rising health care premiums and costs, the federal government permitted companies to drag surplus funds from workers defined benefit pension plans to cover rising health costs. Up to 20% of health cost increases were subsidized in this manner. But that represented giving up wages–i.e. concessions–in order to maintain benefits as well. Only this time it was workers deferred wages that went into their pension funds instead of their immediate paychecks. But a wage is a wage, whether immediate or deferred. And concessions on nominal (immediate) and deferred wages became the increasing rule by the late 1990s.

This evolving concession bargaining since the late 1970s into the last decade represents the second phase of the history of collective bargaining in the US. The first, as noted above, was the phase during which collective bargaining expanded both in terms of scope and magnitude, that is, in terms of new areas of bargaining added to negotiations as well as in terms of advances in wages and benefits. The second phase of bargaining in the US, from the late1970s to around 2000, represents the first stage of concession bargaining.

Stage Two: From Magnitude to Scope Concession Bargaining

This first stage of concession bargaining (1975-2000) began to change for the worst in the past decade, shifting to a new stage during which workers and their unions have been forced to grant concessions not only in terms of magnitude or levels of wages and benefits, but now in terms of scope and entire areas of bargaining as well. Defined benefit pensions were abandoned for 401k personal pension plans at an accelerating rate. Not only were pensions increasingly privatized, but the de-collectivization of health insurance plans also accelerated under George W. Bush with the introduction of what were called health savings accounts–the analog on the health benefits side to 401ks on the pensions side.

Employer provided health insurance benefits were now dropped in growing numbers altogether. Or they were dumped onto the union, as in the Auto Industry, in the form of VEBAs (voluntary employment benefit agreements). Employers removed in effect any negotiating over companies paying for health care for workers from union collective bargaining agreements. In a similar fashion, once widespread Cost of Living clauses in collective bargaining agreements were stripped from union contracts. Ditto for supplemental unemployment benefits (SUBs). More and more companies simply discontinued unilaterally retirees health care coverage from bargaining, aided now by court decisions that ruled such were not bona fide subjects of bargaining any longer. Union rights were increasingly circumscribed in agreements, as management rights clauses were expanded. In other words, concession bargaining was no longer simply about magnitudes–i.e. how much wages or benefits would be reduced in order to keep jobs or the companies from moving offshore or from being outsourced and reduced to mere skeleton crews. Not entire key areas of union contracts were being conceded and thus wiped out, removed from the very subject of bargaining altogether.

Stage Three: Concession Bargaining Extends to the Public Sector

In the past two years this second phase of concession bargaining–i.e. cutting levels of wages and benefits and giving up entire areas of bargaining–is now being applied to public sector workers as well, in a vicious attack now unfolding throughout the country. Politicians of both political parties, public sector employers, and wealthy billionaires and millionaires who pay for the elections of these same politicians, are in the process of imposing concession bargaining on public workers.

Furthermore, concession bargaining is occurring in an especially compressed form. Both magnitude and scope are occurring simultaneously and in a matter of just a few years instead of the few decades in which it was deepened in the private sector of the economy. The entire process is effectively telescoped and thus taking place is a particularly intense form. All across the country today, in state after state, politicians are declaring bargaining over pensions and health care no longer will be the practice. They are unilaterally discontinuing defined benefit pensions and replacing them with 401k plans.. They are moving to eliminate union and agency shop agreements with the open shop, placing caps on wage negotiations, and in general attempting to return to the days of civil service rules and regulations in lieu of bona fide collective bargaining.

Stage Four: Concession Bargaining’s New Target: Social Wage Reduction

Concession bargaining is morphing still further, however. It is now moving from the level of taking back money wages and benefits at the shop-floor level–both in the private and public sectors–to the level of social wage concession bargaining.

The social wage is money wages that workers give up in exchange for pay they will receive at a later date. Social wages are thus deferred wages. Social wages are most notably Social Security and Medicare taxes that workers pay in the form of payroll taxes, in order to receive the wage paid upon retirement in the form of social security pension and medicare health care benefits. The focus since the 2010 midterm elections in the US is now on austerity, a codeword for cutting so-called entitlements like social security and medicare. But social security and medicare represent wages paid by workers in the past for claims in the future. Not content with concessions from current wage and benefits, Corporate America–the rulers behind the throne of Congress and the Presidency and Courts–now want reductions in the social wage as well. Why? So they can maintain their historic tax cuts enacted over the past three decades and not have to pay the costs of the bailouts and economic crisis that they themselves caused.

The dimensions of the Great American Tax Shift of the past three decades, still on-going and expanding under Obama and the Democrats (and about to expand further still) are the subject of another analysis. But briefly, a tip of the iceberg view is: In the 1960s corporations paid 30% of total federal tax revenues; today they contribute 6.6%. In the 1960s the top income brackets paid 45% of total federal tax revenues; today the effective top bracket tax paid by the wealthiest individuals is only 16%.

The latest phase of concession bargaining now emerging in the past year– concessions giving back the social wage–is historic. It represents concession bargaining over workers income that is shifting to the political level on a grand scale. It is grande scale concession bargaining. Not content with concessions in money and benefits at the shop level in the private sector, not even content with extending that in intensified form today to the public worker sector, corporate interests now demand concession bargaining over social wages at the political level.

Whats especially onerous about the new concession bargaining is that politicians are making the decisions. Workers don’t even have the option of voting on the concessions, or striking in opposition, as they might when undertaken in cases of earlier concession bargaining at the shop level. They now have virtually no say in the process short of taking to the streets to have their voices heard, which appears increasingly as the only alternative. Moreover, the dollar value of the concessions being, and about to be, offered are now also immensely greater. As the recent debt ceiling debate illustrates clearly, the coming attack on Medicare represents social wage concessions approaching half a trillion dollars. Concessions involving social security retirement that will soon follow in 2012 will amount to a like amount, at minimum, with even more Medicare cuts. In just a few short years, several times the value of total givebacks in concessions in wages and benefits at the shop level since 1979 may occur. It is a massive transfer and shift of income from working and middle class America to the wealthiest households and their corporations.

Behind the facade of Washington politics are the same corporate interests, however. Only now instead of directing their managers at the bargaining table, they now direct their political managers by means of their immense, and growing, campaign contributions and billion dollar lobbying efforts.

Occasionally an example slips through the veil of confusion about whos behind it all. The veil drops revealing the Wizards of Oz pulling the levers and the curtains. Witness the notorious relationship between Wisconsin governor, Walker, and the billionaire Koch brothers. But there are Koch brothers lurking everywhere behind the veil, in Ohio, in New Jersey, Connecticut, Massachusetts, Georgia, and even California. They are driving the fundamental strategy, directing the elected politicians in exchange for campaign contributions and day to day lobbying largesse.

The Empty Legacy of Concession Bargaining

What concession bargaining has proven over the past three decades–whether at the political level or the shop floor level–is that concessions only result in demands for more concessions.

Concessions in the private sector over the past three decades haven’t saved jobs. What they have achieved is a stagnation and decline in the income for 100 million families that is choking off consumer spending and economic growth and therefore economic recovery. The second phase, concession bargaining in the public sector, will now add to this consumption decline. And the now emerging third phase, expanding concession bargaining to the level of social wages, about to begin with the direct attack on social security and medicare will not save those programs any more than concession bargaining in the past saved jobs.

Concession bargaining will only result in a deepening crisis in those programs and lead, inevitably in turn, to more demands by corporate interests for still further cuts (i.e. concessions) in those programs. Calls by politicians for shared sacrifices are really concession bargaining by another name: to reduce the social wage represented by social security and medicare.

Nothing positive whatsoever has come from concession bargaining the past three decades in the private sector. Good jobs have continued to disappear by the tens of millions. Wages and earnings for the 100 million non-supervisory workers in the US have stagnated and fallen. Giving up wages to maintain health and retirement benefits have fared no better. Pensions have nearly disappeared and employer provided health care coverage has declined by the millions of companies, and will not last out the current decade. Nor will anything beneficial come from the intensification of concession bargaining now penetrating the public sector. Union leaders will give up wages and benefits, but that will not stop the millions that are slated for layoffs in the public sector over the next few years–at minimum 500,000 in the year ahead alone! The extension of concession bargaining to the public sector, now accelerating at a pace far worse than that which previously occurred in the private sector, will produce the same results, only now telescoped into a much shorter time period. Not least, nothing positive will come from granting concessions over social wages-i.e. agreeing to reduce social security and medicare benefits. Those programs will not be saved by concessions. They will be destroyed by them. The only way to stop concession bargaining in any of its forms, including the most virulent now attacking the social wage, is to refuse any and all concessions. No cuts and No Concessions is the only effective bargaining demand.

And just as, at the shop floor, when union leaders cave in to employer demands for concessions, they should be thrown out and replaced with leaders who will refuse to do so and stand firm, so too should any politician who agrees to concessions from social security and medicare be thrown out. Indeed, any politician who fails to actively resist such concessions should be thrown out. Not in the next election. But by immediate recall.

Finally, any political party that allows its elected to members to agree to concessions in social security and medicare, or whose elected members stand by silently while the fight to defend the social wage takes place, should be replaced by another political party whose members consider the social wage non-negotiable.

Unfortunately, it appears the political party, the Democrats, who introduced and once championed social security and medicare are now becoming participants in its destruction. Not only President Obama, but Senate leader Harry Reid and House leader Nancy Pelosi, have all publicly indicated this past summer they are prepared to concede and to cut medicare before year end 2011 in some form. Next it will be social security retirement. And medicare again.

But once starting down that road of initial concessions, it will only lead to further concessions, as the history of concession bargaining at the shop floor over the last three decades sadly shows.

If that happens, and the leadership of the Democratic Party abandon social security and medicare to concession bargaining, as it appears they will, the only answer to stopping concession bargaining is to create a new party of labor, every member of which must solemnly pledge to expand the social wage, to defend and expand social security and medicare, to stand firm on the question of concession bargaining. There can be no Bi-Partisan compromise. It is time to raise the flag, with the motto boldly proclaiming across it: No Concessions! No Retreat!.

Jack Rasmus, August 7, 2011

Jack is the author of the book, Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, 2010, which predicted the coming double dip recession in late 2009. He is also author of the forthcoming book, Obama’s Economy: Recovery for the Few, same publishers late 2011. His blog is jackrasmus.com and website:
http://www.kyklosproductions.com.

COMMENTARY: Well-known liberal economist, Dean Baker, recently wrote that those predicting a double dip recession are wrong. Beginning with an argument that those seeing a double dip coming today are the same crew who, back in 2007, were saying there would be no crisis or recession, Baker goes on to provide selective data in support of his argument that a double dip is not possible. In this reply to Baker, I address each of his data points and challenge his erroneous assumption conflating all those predicting double dip today (including yours truly) with those who denied recession coming back in 2007.

“No, Dean Baker, a Double Dip Recession is Quite Likely”, by Jack Rasmus, copyright August 2011

In a blog today, August 28, on Znet, liberal economist, Dean Baker, argued that Double-Dip Recession is Unlikely. In his piece Baker maintains that everyone who is now predicting double-dip are the same forecasters who, back in 2007, were erroneously predicting there would be no economic crisis or recession in 2008. Baker then makes his main point: There is no reason to believe that forecasters are any more knowledgeable about the economy today than they were four or five years ago.

But contrary to Bakers rhetorical point, not everyone forecasting a double dip today were predicting no crisis back in 2007.

Baker conveniently forgets that some of the most prescient economists who predicted the recession and financial collapse back in 2007 are also now predicting that a double dip in the coming months is increasingly likely. In other words, not everyone forecasting double dip today were the polyannas predicting no recession back in 2007. How about Nouriel Roubini, Dean? An economist who famously predicted the financial collapse and recession back in 2006-07, and who now believes double dip is more than 50% likely? I would add myself, Jack Rasmus, to that short list as someone who also publicly predicted the recession back in 2008, and has been predicting a double dip as increasingly likely ever since last April 2011. In fact, I predict its more than a 50% chance with the odds rising weekly.

Baker goes on to define a recession as meaning the economy is actually shrinking. Presumably he means that gross domestic product, GDP, the overall measure of the economy, must turn negative for a recession or double dip to happen. But if he means GDP must decline for a double dip to occur, he should reconsider. GDP is not the indicator by which a recession is defined, whether initially or in the case of double dip. In fact, there is no official definition of recession, including the popular but incorrect view of two consecutive negative quarters of GDP decline.

A recession is determined by the National Bureau of Economic Research (NBER) group of economists. They loosely consider a host of indicators to determine whether a recession has occurred. That includes industrial production, sales, exports, stock market shifts, employment and potentially other factors. So, the economy doesn’t necessarily have to shrink according to any single indicator, and that includes GDP. In fact, some indicators may actually still rise and a recession may still occur, so long as some (undefined) collective weight of other factors are in retreat.

To show a double dip is not on the horizon, Baker then looks at the condition of several economic indicators as they exist in the present. To support his view of no double dip coming, he argues that housing and car sales are already so low that it is hard to envision them falling further. That’s true. Housing is, and has been, in a veritable depression–not a recession–for four years now. All indicators–home prices, housing starts, mortgage loan applications, home sales, etc.–are 50%-75% off their peak. Housing did experience a very short and shallow upturn for one quarter in early 2010, but then it declined again. But all that means is that housing and construction in general, which make up about 9% of the economy, have already entered a double dip months ago. To say they cant fall further is not much of an argument against double dip. They’re already there.

Baker looks next at consumption, 70% of the economy, and notices that it at present is growing slowly and there’s no reason to see how it will not continue to do so. He adds that 117,000 jobs were created last month, a weak but nonetheless positive statistic revealing some growth.

But he should take a second look at the job statistics. As this writer pointed out in a blog entry last month, the 117,000 purported job gains were from only one of the two surveys conducted by the Labor Department. The other survey, the one Baker ignores, and the one that picks up small business and self-employed much better, showed a decline of 198,000 total jobs last month. Moreover, like Housing, the jobs market already experienced a double dip last summer 2010. It is now headed for a triple dip.

And so far as consumption is concerned, Baker should again look forward–not at the present–if he wants to predict or deny the prediction of double dip. He should look forward, to where conditions are headed if he wants to make a forecast. Too many economists today typically forecast the present, not the future. Its safer that way. However, in so doing, in playing it safe, they are repeatedly incorrect. They miss the true shifts and turning points in the economy. And were at such a turning point once again.

Baker is also wrong that consumer spending will continue at its slow but positive rate of growth. Consumer sentiment, measured by the University of Michigan index, has been in free-fall the past few months. As the latest index reported last Friday showed, it is now at its lowest point since November 2008, which was the month that consumption fell through the floor in its worst collapse since 1945. OK, Baker will no doubt reply that consumer sentiment is volatile and doesn’t always reflect how consumers will actually spend. In answer, this is often, but not always, true. When the conditions are overwhelmingly negative, consumer sentiment does predict consumer spending. And conditions in the US and globally are now converging toward an overwhelming common outlook of economic slowdown. Time will tell in the next few months if this writers perspective on that is correct, or if Bakers is more accurate.

Economists are often so enamored with numbers they cannot assess the psychology and behavior of consumers and investors very well, especially at the turning points in the economy in which we have now entered. Psychological viewpoints–whether consumer, business, or investor–are not easily quantified. And most mainstream economists ignore what cant be put in numbers–another reason why they forecast and predict so badly when important economic shifts occur.

In further support of his view of no double dip coming, Baker also cites business equipment and software spending, and notes that it has been growing at a rate of 5%-10% and is not likely to turn down sharply in the near future. But much of the business spending on equipment and software has been slowing rapidly over the past year. From 23% it fell to 14% to 8% and in the second quarter of this year to barely 5%. The manufacturing sector has been the big buyer of equipment and software. Manufacturing has been driven in turn largely by US exports, purchased by Asia and Europe. But last month manufacturing indexes in the US and around the world both fell by their largest percent in decades. In other words, the global economy is slowing rapidly everywhere. Not just the periphery economies of Europe, already in recession, but the main economies of France, Germany and UK, all now show virtually flat and stagnant growth. The big economic engines of Europe are all about to tip into recession themselves in the coming quarter, this writer predicts. Ditto for China, India and even Brazil,  which are not in recession but whose economies are projected to slow by half. That means a sharp drop off in demand for US exports, which in turns means manufacturing in the US turns from the current flat to a future negative. And that means business spending on equipment and software will decline as well, continuing the already downward trend.

Again, one must look into the future to predict the future, not simply look at the present and crudely extrapolate forward to make a forecast. But that s the forecasting technique of mainstream economists, and apparently Baker as well.

Baker further underestimates how much the contraction underway in the government sector, both federal and state and local, will slow the US economy in the months to come. The government sector is responsible for about 20-22% of total US economic growth. Baker again looks at the present and sees only a 1% to 2% contraction today and he extrapolates that forward. He does not look beyond to see how the government sectors contraction will soon deepen further. Just look at the budget cutting that has occurred in recent months and will escalate in the coming months. There’s the $38 billion cut last spring by Congress, the $1 trillion cut in the August debt deal, and the guaranteed minimum additional $1.2 trillion in further cuts by the end of the year. That will add to the 1%-2% already occurring.

Indeed, this writer predicts the cuts due by December 23 will approach closer to $3 trillion, well beyond the August mandated $1.2 trillion, as Obama and the Republicans attempt to outdo each other in their competition to win the title of biggest deficit cutter.

That’s a total of $4 trillion plus cuts in government spending. Not all will occur the coming year, of course, but at least $200 billion will. Add to that another $50-$75 billion in projected state and local government cuts and the total is around $275 billion. Then throw in the government spending multiplier, which is about 1.5 times the original cuts, and the total cuts to spending impacting the economy next year could reach about $400 billion. That’s about double Bakers predicted 1.5% continuing government sector contraction.

Baker gives himself one small window of escape from his prediction of no double dip. He concludes by admitting double dip might occur if a collapse of the euro led to a Lehman-type financial freeze up.

As this writer predicted two years ago in a Z article, at least two sovereign defaults would occur in Europe and the euro will break up into a type of two tier currency. If Italy, or even Spain, are among those two it is almost certain one or more French or Swiss banks will become the next Lehman (an investment bank that precipitated the banking panic of September 2008 sending the global economy into recession within two months). And if the French banks implode, it will quickly spread to the US banking and financial sector. Credit will freeze up again across multiple markets and push the already slowing US economy, that grew less than 1% in the first half of this year, into a double dip. Contingency measures are already hurriedly underway in the US government, Federal Reserve, Treasury and among big US banks today to plan to contain this very scenario.

Baker cites this exception of a Euro crisis but then qualifies himself to argue such degree of blundering is difficult to envision. Well, its not really so difficult to envision. Just follow the European business press and the picture looks inevitable.

And envisioning is what forecasting and predicting is all about, isn’t it? Unless of course one is content, as most mainstream economists, and perhaps in this case Baker as well, to safely forecast the present instead of the future.

Jack Rasmus
August 28, 2011

Jack is the author of Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave Macmillan, May 2010 (in which the double dip on the horizon was predicted); and the forthcoming Obama’s Economy: Recovery for the Few, January 2012, same publishers.

COMMENTARY: Last Friday’s July jobs report indicated 117,000 jobs were created last month. It was hailed as a ‘not so bad’ report, not great but not as terrible as expected after last week’s dismal manufacturing and consumer spending reports that forced stocks into a downward trajectory after the ‘debt deal’ did little to stimulate economic confidence. But the 117,000 reflects only one of the two Labor Department surveys of employment. In fact, the report dominated by larger companies. Job losses are more concentrated in medium to small companies. The second Labor Department jobs report that better reflects smaller businesses and self employed showed a different picture: jobs actually declined by 198,000 in July. Moreover, they’ve fallen by 901,000 in the last four months. Take another look. At the report the press is purposely avoiding any comment on.

‘Look Again–July Jobs DECLINED by 198,000’ by Jack Rasmus, August 6, 2011

On Friday, August 5, the employment numbers were released by the US Department of Labor for July jobs. The Current Establishment Survey (CES), referred to as the payroll report, indicated 117,000 jobs were created in July. That was more than the general forecast of 85,000 by economists, although still well below the 150,000 a month needed to absorb new entrants into the labor force. However, it was nonetheless heralded by the business press and politicians as not so bad, considering that earlier in the week reports for manufacturing activity and consumer spending were disastrous–indicating the worst performances in two years for those indicators since the economy’s 2009 lows.

But hold on. The 117,000 represent just one part of the Labor Departments monthly reporting of employment, what are called the B tables. Those tables reflect a reporting by establishments (businesses) to the Labor Department each month. The problem with the payroll report (CES) is that it is acknowledged to be biased toward larger establishments. Bigger corporations, with more than 500 employees. Many smaller to medium businesses are not included in the CES report and B tables. Nor are most of the millions of non-incorporated proprietorships; or the nearly ten million self-employed. The latter three groups are reflected in the Labor Departments A tables, in a second survey on jobs each month called the Current Population Survey, or CPS.

The CPS reflects best the job hiring and layoffs by small and medium sized businesses. Small business is generally acknowledged as responsible for more than half of all jobs created over the past decade. For job losses as well. And small business has been steadily reducing jobs this year and, furthermore, continues planning to do so in the second half of 2011, according to various business surveys.

For example, the National Association of Independent Business, NFIB, a trade group that surveys its membership of small businesses on a monthly basis, reported three months ago in May that small business was planning this summer layoffs at the highest rate since last September 2010. Those layoffs are now working their way through the economy this summer.

So why didn’t they show up in the July Labor Department jobs report? Well, they did. In the CPS report–i.e. where most small businesses and self-employed are recorded–in contrast to the payroll CES report where they aren’t. But not one business press story in a major business daily or weekly referred to the CPS reports results, except to note that the unemployment rate–a statistic from the CPS report–fell slightly to 9.1%.

So what did the jobs numbers for July show? Total net gains in employment, which is really what is important, declined by 198,000 in the July CPS report. In other words, there were 198,000 fewer non-agricultural workers employed in July than in the previous month of June!

More interesting still, the number of workers employed, according to the CPS, has fallen for four consecutive months by a cumulative total of 901,000.

The July drop of -198,000 was not as larger as the June decline of 526,000. But together, with April and May job declines, the total decline was -901,000. See Table A-5 of the Labor Departments Current Employment Situation Report released on August 5 for July. There you will find jobs data showing that in February 2011 a total of 137,738,000 non-agricultural employees were employed. In July, that number had declined to 136,837,000.

What the A tables in CPS also show is that full time employed workers total employment fell over the past four months by -926,000, including 48,000 last month. So why did the unemployment rate fall only to 9.1% last month, given that many lost jobs? Because there were 481,000 part time workers hired over the last four months while 579,000 workers were so discouraged in finding work they left the labor force altogether. The latter two statistics reduce and offset the 926,000 jobs lost, to make it appear a small net number of jobs were created. That adjustment then lowers the unemployment rate.

So what we have is a picture in July of continuing net job loss for the month, not job gain. Over the past four months its a scenario of a major churning of jobs. Better paying full time jobs are being destroyed, while less paid part timers are being hired and larger numbers of workers are giving up and leaving the labor force. All that translates into lower weekly take home pay and a steady drift lower of consumption and buying power.

Its the steady stagnating and declining real spendable income for 90% of the households in the US that underlies the faltering business confidence that conservatives and Teapublicans like to refer to so much. Business confidence has not recovered because few can afford to buy their products. Business wont invest and expand production and hire if it cant even sell the products it now has. And that’s a problem due to stagnating and declining incomes by the vast majority today, and the largest factor determining that decline is the related stagnation and decline in jobs.

As a consequence, big businesses continue to sit on their $2 trillion hoard of cash today, while small businesses cant get loans to expand and hire. The perpetual media drumbeat of excuses for their hoarding $2 trillion is that we need to give businesses yet more tax cuts to get their confidence up and invest. So whats the magic number? Will $3 trillion do it? $4 trillion? Or the pro-business apologists argue we need to get rid of regulations to improve business confidence. Or we need to cut trillions from spending (but dont raise their taxes) and then their confidence will return. The business confidence argument is nothing but a confidence game.

As the past weeks events since the passage of the debt ceiling bill last August 2 has shown, business confidence is impacted little by deficit cutting and phony debt ceiling crises. Its impacted by manufacturing reports showing record declines in manufacturing activity and consumer spending turning negative, both reported last Tuesday and Wednesday. The Friday, August 5, July jobs report was considered a moderate report by the business press, not too great but not as bad as the manufacturing and consumer reports earlier in the week.

But that’s only because the press carefully avoided reporting the CPS jobs decline estimates for July and chose to focus on the less negative CES payroll report. But job losses cannot be ignored. Nor can they be hidden or avoided. Soon to be added to the continuing decline of jobs by small businesses, moreover, will be the mass layoffs by large businesses that also began to appear in late July–i.e. before even the CES was able to pick them up. Those mass layoffs by big corporations–in banking, manufacturing, and services–will soon appear in the August jobs report that will be released the first Friday in September. Just in time for labor day.

Meanwhile, Congress will stumble toward another spending cuts crisis with the upcoming 2012 budget that is due by October 1, cutting more government jobs at an annual rate of 500,000 or more, while the private sector slashes jobs at an even higher rate.

The real crisis is not deficits or debt, but the crisis of job creation that is the number one reason for the chronic and growing deficits of the past two years.

Jack Rasmus
August 5, 2011

COMMENTARY: After being assured by politicians that the economic ceiling would fall in if the deficit wasn’t cut by trillions in order to raise the debt ceiling, business and the markets yawned with the passage of the deal. Was it perhaps not such a pending crisis as we were led to believe? It had similarities to 2008 and then Treasury Secretary Paulson demanding a $700 billion blank check to bail out the banks, or economic armageddon would quickly happen. But business and markets didn’t yawn at reports this week indicating a collapse of global manufacturing; or the plunge in consumer spending. They choked and then screamed. The real economy is accelerating its slide toward double dip, as this blog post argues, which was written earlier this week and appeared on the public site, Truthout.

‘America’s 4-D Economy: From Debt Deals to Double Dip’, by Jack Rasmus, copyright August 2011

With the debt ceiling agreement almost a certainty this past Sunday evening, the expectation was the markets and the economy would rebound briskly the following day. After all, werent we all bombarded for weeks with the message that if the debt ceiling were not raised, the economic sky would fall in? The economy would tank? Economic Armageddon was coming? So if we raised the debt ceiling, the markets would rebound, right?

On Monday the stock market at first did rebound on the news of the imminent debt deal, but only briefly and modestly. It quickly turned around within hours on Monday, declining sharply by the end of the day. Why? The debt deal in the bag by Monday. The recalcitrant House and Teapublicans voted for it. Only the formality of the Senate voting on Tuesday remained. Why wouldn’t the markets, falling most of previous week, snap back with the conclusion of the debt deal?

Instead the markets slumped badly by the close of business on Monday, not because of the debt deal but in response to a report late that morning showing the July U.S. manufacturing activity index had fallen to 50.9% in July from 55.3% in Junethe largest collapse in years and to the lowest level since June 2009 which was the trough of the recent recession. 50% for the manufacturing index represents no growth. That’s stagnation. Even more serious, in the report future orders for manufactured goods fell to 49.2%–a clear contraction–the first such since June 2009 as well. In other words, in terms of manufacturing at least, the economy now was right back where it was two years ago.

No wonder the stock market shuddered on Monday, notwithstanding all the good news about the debt deal. The performance of the real economy was far more important and real than all the huff and puff about debt ceilings and defaults by the US government. The alleged good news of the debt agreement was overwhelmed by the indisputable real news the real economy was heading for a relapse.

And it was not just the US economy. Not reported by the US press on Monday was that the US manufacturing indexs nearly 5% points drop was being echoed at the same time by a decline in global manufacturing–in Europe, UK, Asia, even China. All reportedly had begun to slip.

On Tuesday the debt ceiling deal was voted up by the Senate and signed by Obama into law. But the New York Stock Exchange fell by another 265 points and the Nasdaq by a whopping 75. Wait a minute! The debt deal was officially done, wasn’t it? No chance of a reversal. So why did the markets finally respond so negatively? The real reason was a further report on Tuesday. Consumer spending–representing 70% of the economy–fell by 0.2%, the first drop since September 2009.

In the face of this evidence of immanent contraction of the US economy, Congress voted to cut deficits in the amount to $1 trillion for certain, with another minimum $1.2 trillion minimum in spending reductions due before the year end. Granted, much of that $2.2 trillion will be spread over ten years. But there will be about $30 billion in immediate cuts this year from the initial $1 trillion deficit reduction. Most of that will come from education. And still more, and bigger, first year spending cuts before year end.

The second round of $1.2 trillion in cuts will likely equal at least another $50-$100 billion in the short term, most of that from Medicare-Medicaid and a lesser, token amount from Defense, this writer predicts. That’s about $100 billion in total federal government spending cuts impacting the economy this coming year. Add to that the $38 billion cuts in spending enacted last spring in revisions to the 2011 budget, plus another $100 billion spending cuts forcasted by state and local governments the coming first year, and what you get is around $250 billion in spending reductions for the coming year.

But this $250 billions impact must be multiplied to get its true, final economic effect. Economists estimate the multiplier from government spending at about 1.5. That means for every $1 cut in government spending, about $1.5 dollars are taken out of the economy. The first year of cuts are therefore $375-$400 billion in terms of their economic effect. Ironically, that’s about equal to the spending increase from Obama’s 2009 initial stimulus package. In other words, we are about to extract from the economy, now showing multiple signs of weakening badly, the original spending stimulus of 2009!

As others have pointed out, that magnitude of spending contraction will result in 1.5 to 2 million more jobs lost. That’s also about all the jobs created since the trough of the recession in June 2009. In other words, the jobs markets will be thrown back two years as well.

With the debt ceiling deal, the US Congress and President have crossed the bridge into parched desert of austerity. This is an historic juncture, shifting from stimulus to grow the economy out of recession to austerity to thrust it back into recession! But the politicians of both parties are due for a rude surprise. Deficit cutting and austerity will result in worsening deficits and more debt, not reductions in deficits. An economy cannot cut its way out of a deficit and recession any more than a company can cut its way back to long run profitability. It can only grow its way out by generating more revenue. For a company, that means selling more products and sales revenue; for the economy that means creating more jobs and raising tax revenue.

Austerity solutions are a dead end. If anyone believes austerity solutions are the answer to recovery, they should simply look at Greece, Ireland, and the rest of the periphery of the Eurozone. Imposing austerity there has resulted in a further deepening recession, falling tax revenues, and still worsening deficits and debt. Ditto for the conservatives in the United Kingdom, whose recent deficit cutting is now thrusting that economy back into recession. The same is inevitable for the U.S. if it continues toward austerity, deficit and spending reductions, as a way to recovery. To employ a metaphor, austerity is like trying to win a race by shooting yourself in the foot at the starting block.

Nevertheless, it appears more austerity is on the agenda in the U: the next round in the 2012 budget negotiations due by October 1; further in the December cuts that will be mandated by the so-called Bipartisan Committee; and following that still more cuts, this writer predicts, in 2012, as the recession wipes out a good part of the prior spending cuts.

More cuts will follow because, despite the deficit cutting, the US budget deficit will now actually worsen and not improve. As the economy slides, tax revenues will fall below those officially projected, generating a call for even more cuts from those who believe deficit and debt reduction will restore business confidence and therefore investment and recovery.

All the talk about restoring business confidence is, in other words, simply a confidence game. Collapsing business confidence is a consequence not of deficit cutting but of consumers being unable to afford to buy their products. Want to change business confidence? Help consumers buy their products and see how fast that confidence returns. Adding 2 million more to the total jobless will only reduce consumers income further, exacerbate the decline in consumption already underway, and result in turn in a further deterioration of business confidence.

The past few days the US economy has been dealt several severe blows in the reports on manufacturing decline and consumers retreat. A one-two punch. Over time the realization will grow that the deficit cuts–$1 trillion now and another $1.2 trillion in a couple months will do great harm to the economy. The cuts represent another major body blow to the economy that is already rapidly weakening. The markets know this. Business confidence knows this. Apparently only the politicians don’t.

And more is yet to come. On Friday the jobs report for July is due for release. July and August employment reports will show even more clearly the serious extent of the economic slide now underway. The coming jobs reports could prove a knock-out blow to the economy. The big money investors are already betting on that outcome. Dump your stocks and stuff your closet with bonds! The recent debt ceiling debate, in retrospect, appears as just the opening act, with the amateurs (Congress and Obama) flailing at each other until finally exhausted and calling it a draw, returning to their respective corners to catch their breath. The main event is yet to come.

In early 2009 Obama implemented his economic stimulus and recovery plan. The Congress and US Treasury spent $2 trillion and the Federal Reserve more than $9 trillion to bail out the banks. What we got was the weakest and most lopsided recovery since 1940. After a brief twelve months the economy sagged again, last summer 2010. Followed by $600 billion more Fed stimulus, and $350 billion more tax stimulus at year end 2010, which included $250 billion in Bush tax cut extensions. The result? The economy slowed again, even more quickly, to less than 1.0% growth in GDP the first six months of 2011. The current third quarter, July-September 2011, will likely prove worse. Stepping into that ring are Congress and Obama. Double Dip recession will be their joint legacy. And if the banking system implodes in Europe, the outcomes will be even worse…much worse.

Jack Rasmus
August 2, 2011

COMMENTARY:

This evening, Sunday, July 31 an apparent ‘deal’ has been reached between Democrats and Republicans on raising the debt ceiling to avoid default, in exchange for $1 trillion in spending cuts. The spending-only cuts represent the long maintained Republican position. No tax hikes. This was essentially the positions reached by the two parties, Reid in the Senate and Boehner in the House last Friday, July 29. Only two other issues remained at that time: Reid’s additional provision for a further $1.044 trillion in defense spending cuts and the Obama demand that no more debt ceiling issues must interfere with the upcoming election season between now and November 2012. Tonight, Reid substituted his Defense cuts with a ‘face saving formula’, in exchange for which the Republicans agreed not to whip him and the Timidcrats again with the debt ceiling tactic before next elections. Both parties then kicked the debt reduction can down the road until November and a report by a new BiPartisan Debt commission submits their recommendations to Congress–for an up or down vote! So much for Democratic debates on what will prove to be massive cuts in social security, medicare and medicaid by year end.

‘The Trillion DOllar Debt Ceiling Deal of July 31’ by Jack Rasmus, copyright July 31, 2011

Sunday evening, July 31, President Obama and Senate Majority and Minority leaders, Harry Reid and Mitch McConnell, announced they had reached an agreement on cutting $1 trillion in spending in exchange for raising the debt ceiling. House Speaker, Boehner, indicated he was also in agreement, subject to voting to take place in the House on Monday.

This latest deal is essentially the same that was reached by Harry Reid in the Senate on July 29 and Boehner in the House on July 27, with two major changesone favored by the Republicans and another by Obama. These two changes were then traded off this weekend, bringing the parties to a deal.

Boehner and Reid essentially came to an agreement last Friday, July 29. Their respective July 29 (Reid) and July 27 (Boehner) positions called for $917 to $927 in spending cuts, only $10 billion apart. Both proposals contained no reference to tax loophole closings. The tax hikes idea was given up by Obama and the Democrats early last week, bringing the Democrats to essentially the Republican position on spending vs. tax hikes. The only substantive difference as of July 29 between the two was that Reid also proposed $1.044 trillion in additional cuts in Defense spending, as well as a measure that prohibited a re-opening of the debt ceiling issue before the 2012 November elections.

Todays Boehner-Reid final agreement effectively drops explicit cuts in Defense, another Republican position all along. Reid’s defense cuts are now replaced with triggers in defense spending reduction. The triggers concept has been a maneuver used by Congress on occasion in the past. It is designed to let one party save face, allowing it to appear that their provision is retained in the bill, when in reality it will never be implemented. In fact, triggers have never been implemented in any instance since 1980 in which they were included in a spending bill.

With Defense spending cuts taken effectively off the table this weekend, the only remaining substantive issue was whether the debt ceiling would be allowed to come up as an issue before the 2012 elections. Republicans now agree it will not.

This Republican shift means Reid’s previously proposed $1 trillion additional cuts in Defense appears, in retrospect, to have been a trading item and tactical maneuver all along to get the Republicans to agree not to revisit the debt ceiling issue again before the coming 2012 elections.

But the Republican leaders in the House and Senate don’t need a debt ceiling issue again to get further cuts. The 2012 budget deadline of October 1 will do just as well for a threat to shut down the government.

So, in summary, it appears the deal just negotiated means both parties agree on cutting $1 trillion in spending only, with no tax hikes. The Republicans will shift to the 2012 budget deadline for a new hammer to extract extra spending cuts. Defense will remain effectively untouched. And, in exchange for $1 trillion in cuts and no tax hikes and leaving defense spending untouched Obama gets an agreement not to raise the debt ceiling issue again before his next election. But don’t think that’s the end of the story. Its just the beginning.

The bigger attack on social security, Medicare, Medicaid is still to come. The next round in what amounts to as class economic warfare by legislation is the 2012 budget negotiations that are supposed to conclude up by September 23. Republicans will get another bite of the apple in spending only cuts at that time. And Obama and Democrats will likely cave in to those demands yet again, as they have repeatedly the past year.

But the even bigger bite will come as a result of another provision in today s agreement: the creation of a so-called Bipartisan Commission to reduce the debt and deficits by even greater magnitudes. That Commission will make still further major proposals for cuts by November of this year, to be voted on by Congress before year-end.

Following Senators Reid and McConnell, President Obama spoke on national TV tonight to endorse the tentative Boehner-Reid agreement and to announce the Bi-Partisan Debt Reduction Commission. In his brief comments this evening he employed an important phrase that TV commentators mostly overlooked. He said, The Commissions proposals will be submitted for an up or down vote only by members of Congress. That means some small group–no doubt appointed by him or Congressional leaders–will now decide solely between themselves composition and magnitude of cuts in Medicare, Social Security, Medicaid, how much tax loopholes will be closed, and how much Defense spending will be cut. The rest of Congress will then be limited to voting yea or nay and that’s it.

The conservative composition of such appointed commissions in the recent past are well known. There was the Simpson-Bowles deficit commission appointed by Obama in 2009 that was lopsidedly conservative. And Obama’s commission to recommend Health Care legislation that was composed of mostly conservative Republican and Democrats. The forthcoming Bipartisan Commission will almost certainly assume the same conservative-leaning composition. We can expect $2 in cuts in Medicare and Social Security for every $1 in tax loophole closing and Defense spending reductions…if were lucky.

This deal of the past weekend to raise the debt ceiling in exchange for $1 trillion in spending cuts–with no tax hikes or defense cuts–shows clearly that politicians in Washington are concerned first and foremost with their re-elections. Democrats don’t want to be confronted with another debt ceiling debacle during their re-election campaign. Both Republicans and Democrats are, furthermore, intent on protecting their Defense industry friends, and on ensuring their corporate campaign contributors don’t have to pay their fair share in taxes. The rest of America gets to pay the bills and pay the price.

COMMENTARY:

While everyone is focusing on the August 2 debt ceiling default deadline looming behind the current deficit cutting debates in Congress, the real blow to awareness how weak the US economy is today may come with the date of August 6 quickly to follow. That’s when the July jobs report is released. July and certainly August reports will reveal the depth of the deteriorating jobs crisis that this writer has been predicting since last January. While the August 2 deadline will certainly impact economic consciousness in a negative way, and already has begun to do so, the August 6 jobs report may just push it over the cliff. Businesses and consumers are already contracting spending and future plans for investment and consumption in the US in anticipation of August 2. But August 6 may have any even greater impact. The US economy has been weakening all year. The deficit cutting debates have added to the decline. The actual cuts forthcoming after the psychological impact of the deficit debates will exacerbate that decline still further. Meanwhile, manufacturing is stagnating as the global economy slows and housing construction remains in depression levels with no sign of any recovery whatsoever. If the deficit cutting is the body blow, ‘left hook’ to the economy, the ‘right cross’ of the jobs markets accelerating decline may just send the economy to the mat.

‘Deficit Debates vs. Jobs Report: ‘Left Hook’ and ‘Right Cross’ to the US Economy’ by Jack Rasmus, July 27, 2011

Why should the Teapublicans agree to Obama and Democrats (aka Timidcrats) offers to settle the debt ceiling issue? Any seasoned negotiator can see that by refusing to agree to all Democrat proposals since last spring Teapublicans have been able to get Obama and the Democrats to offer even more in spending cuts. They have succeeded as well in getting the Democrats to drop all demands for raising taxes on the rich and corporations. So why should they change that strategy?

Here’s a brief history of the past three months of the deficit reduction charade:

Last spring, Obama and the Democrats caved in on retroactive cuts in the 2011 budget. Boehner wanted $39 billion and he got $38. In June, in back door negotiations with Vice-President Biden, the Republicans demanded no tax increases in any package. Biden agreed to $2 trillion in spending cuts with no tax hikes at that point. After that, you could forget any tax hike idea. Republicans knew that the Democrats would drop it in the end.

Obama then jumped into negotiations in July, trying to resurrect the idea of some tax revenue and trying to extend the time limits past the 2012 election period. He upped the ante, trying to entice the Republicans with massive spending cuts and token tax hikes in exchange for taking the deficit cutting subject off the table until after the election. Obama’s July cuts amounted to 87% in a $4 trillion package with doubtful measures about closing tax loopholes for the remaining 13%.

But Boehner still refused and walked out. After all, the walking out tactic worked the month before with Biden. It would work again.

At this point, just a few weeks ago, the Gang of Six jumped in, proposing a package much like Obama’s. The President quickly endorsed it as a way to resurrect his original proposal. The Republicans refused again. Why should they. They already walked out on a similar deal. And Obama offered more.

And so Harry Reid, the lead Democrat in the Senate, has proposed $2.2 trillion in spending cuts, again with no tax hikes, not even loophole closings this time. Of course, the Reid proposal includes $1 trillion in cuts in war spending, which the latest Boehner-Teapublican proposal has adamantly ruled out. In their latest ‘cut, cap and balance’ proposal, Boehner and Teapublicans specifically exclude any cuts in war or Pentagon spending from their deficit spending cuts.

Boehner’s most recent proposal of Monday, July 26, amounted to only $850 billion in spending cuts, according to the analysis of the Congressional Budget Office, while Reid’s was $2.2 trillion. That provided the opening for Teapublicans to demand Boehner up his proposed cuts. Boehner will now demand even more spending cuts.

The Republicans have won the debate over whether tax hikes will be in any spending package. Obama, Reid, and the Democrats have totally caved in on that issue at this point. The debate is now just over how much spending cuts, whether defense will be included or not, and how much will Social Security, Medicare, and Medicaid be cut.

But what do the Teapublicans and Obama really want?

The primary objective in these negotiations for Obama is now clearly his demand that these negotiations conclude further deficit cutting until after the 2012 elections. Obama is willing to cut social programs by massive amounts in order to gain what he perceives is a necessary election campaign period advantage of no more debates or cuts until December 2012.

Conversely, what the Teapublicans want is more. More spending cuts, now that they’ve won the tax hike issue. And no agreement to stop further demands for spending cuts until after the elections. They want to come back to the trough and demand additional spending cuts before the 2012 elections in three more bites: a demand for more cuts as the 2012 budget is concluded October 1; another reopener for cuts in February, and a third go at it in September 2012 as the 2013 budget is being debated by October 1, 2012.

So this is now largely about election year maneuvering. Either way, however, it will mean disastrous consequences for the US economy. The debates on deficit cutting are already producing a serious contraction in consumer and business spending. If business has been hoarding $2 trillion and not spending on investing in the US–which has in fact been the case over the past year–they will now hoard even more. Ditto for banks refusing to lend to small business for investing. And that’s just the impact on the real economy from the debates, not the actual cuts in government spending which, when enacted, will result in even deeper impacts on the economy.

These economic effects, moreover, come at a time when the US economy has been heading toward a double dip anyway due to causes independent of the deficit cutting debates. The jobs markets are entering a triple dip. Housing is declining again. Manufacturing has leveled off. Foreign demand for US goods is rapidly declining, as China, India, Europe periphery slow or sink into renewed recession. State and local governments accelerate their cuts in spending and raise fees. And the American consumer–70% of the economy–faces declining real income as prices for gasoline, food, healthcare, education all continue to escalate.

Everyone is focused on the deficit debate issue as the August 2 default deadline approaches. But that is the wrong date. August 2 will not result in a default, which technically means either the interest or principle on a loan is renegotiated. The US will not technically default. There may be some short delay in payments, but not a true default. That does not mean, however, the stock and bond markets will react negatively. They will. We are about to witness a major contraction of the stock markets and decline in the value of US bonds. That will contribute as well to an economic slowdown and double dip.

But readers should watch what will happen on Friday, August 6, when the jobs numbers for July come out.

The US economy is like a punched-out fighter in the 8th round. He’s been knocked down early in the bout (2008), sent to his knees again (summer 2010), and now the Teapublicans have dealt a left hook to the body (as Obama and Timidcrats dropped their guard) with the debt ceiling debates. But the knock out blow may prove to be the coming right-cross with the August and September jobs reports. The now staggering US economy will drop to its knees yet again, a third time. That’s called a double dip recession.

Jack Rasmus, July 27, 2011

COMMENTARY:

There has never been a recovery from the current recession, notwithstanding official declarations that the recent recession ended more than two years ago in June 2009. It all depends how one defines and measures recession, and GDP analysis and even the NBER’s broader analyses, are notoriously deficient in defining an end to recession. Since June 2009 the housing market has already experienced a double dip, as has the jobs market. The latter is now well on its way to a triple dip. The jobs, housing, and local government crises have together prevented any sustained recovery. And now Congress and the President, with their myopic fixation on deficit cutting, are all but guaranteeing a double dip. Add to that the progressive slippage of other economies like Japan, Australia, the UK, and Euro periphery deeper or into recession, and the rapid slowdown of growth in China, Brazil, India, plus the EUs slouching toward a banking implosion–and you get the overwhelming drift toward global double dip. Here s the hard, documented facts why the US and global economy are on the road to an inevitable official double dip.

For the full length 5,000 word feature article go to Jack’s
kyklosproductions website:

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