Jack Rasmus

COMMENTARY: Today, June 1, the US and stock markets across the world experienced major declines. Further significant corrections are almost sure to follow. The causes were the increasingly obvious fact that the US economy is once again about to slow significantly, and has already begun to do so.  On wednesday, a preliminary jobs report by ADP showed virtually no creation in May, contrary to expectations of another 200,000. In addition, manufacturing indexes in the US have plummeted by huge amounts, both for current and new orders. Housing prices are again in free fall and housing lingers in depression like conditions. Meanwhile, China, India, and Brazil are sharply cutting back their economies, while Japan, UK, and Australia are all entering deeper recessions, and the Euro debt crisis deteriorates with no solution in sight. These are all events this writer has been predicting for months, and forecast as far back as late 2009 when his book, EPIC RECESSION, was written and sent to publishers. The US economy is closely tracking a previous Epic Recession of 1907-1914.

‘THE COMING DOUBLE DIP RECESSION, by Jack Rasmus, copyright June 2011

“Today, June 1, stock markets in New York and around the world declined in levels not seen since last summer 2010. Days and weeks immediately ahead will likely register even further significant market declines, as the obvious becomes increasingly evident: the U.S. and other major global economies are once again on the cusp of a significant slowdown.

In a recent post a few weeks ago, entitled Why March-Aprils Job Gains Will Collapse This Summer, this writer warned that the official hype about job recovery promoted by the business press, and distorted US government data, was grossly inaccurate. Behind the false jobs data lay a growing picture of imminent economic relapse. The U.S. Labor Departments jobs numbers due this Friday, June 3, will likely further corroborate this view.

But the coming economic slowdown is not simply a result of the failure to create a sustained recovery of jobs in the U.S. for the past two years of so-called economic recovery. Nearly all economic indicators have been deteriorating since the beginning of 2011, even though policy makers and Wall St. investors have been diligently ignoring the fact.

Consumption growth, which represents 70% of the U.S. economy, early in 2011 fell by half compared to the previous period in 2010, from 4% to 2.2%. Real spending, adjusted for inflation, has been mostly flat so far in 2011. Rising gas prices have accounted for 60% of consumption gains in 2011. Escalating prices for food, health care, local taxes, and education costs have taken a further toll. The wealthiest 10% of consumer households now account for 60% of spending, buoyed by the past year of stock market gains that are now about to be reversed. High end retail stores, like Tiffany’s, rake in record sales while low end retailers like Wal-Mart struggle for sales. Apart from the wealthiest households, there has thus been no real sustained recovery of consumer spending in the US economy for the past two years. Retail sales have fallen the last three months in a row. And the lack of job growth, falling home values, rising core inflation (food & energy), and declining real incomes for the 95 million households earning less than $100,000 a year means a flat at best scenario for consumer spending for 2011.

Housing, which accounts for another 10% of the US economy, is in a deep depression, a condition comparable only to the 1930s. So no help here. Housing starts, sales, building permits are off by 75% from 2007 highs. After having dropped by 25% in the first phase of the recession, then briefly leveling off, home prices are in decline once again. Another 15% drop is predicted. There’s never been a sustained recovery from any of the ten post-1945 U.S. recessions without a housing recovery; and the latter is clearly more unlikely than ever today, given the nearly 10 million foreclosures and 16 million–i.e. more than a third of home in negative equity.

What little economic growth has occurred since June 2009 has been the result of inventory buildup by business, moderate spending on tech equipment, and a brief surge of manufacturing, with much of the latter driven by export sales. But manufacturing represents only 10% of the US economy and cannot by itself lead the economy onto a sustained growth path. Moreover, it too has begun to slow and decline in the past two months as the global sources of demand for US exports begin themselves to decline. The U.S. index measuring manufacturing activity in May fell a full 7 points and new orders by almost 11 points–one of the largest declines in recent years and back to the low point of June 2009. Global sources for US exports are drying up as well. China, India, and Brazil have all taken action to dramatically slow their economies growth rates down by at least half. Meanwhile, Japan, Australia, the United Kingdom have all re-entered a recession, while the periphery economies of the Eurozone continue in an ever-deepening economic contraction.

The so-called economic recovery that has been underway since the official end of the recession in June 2009 has been the weakest and most lopsided recovery from recession in the post-1945 period. The best quarters of economic growth, which occurred in the second half of 2009, were merely half that typical of recoveries from recessions. In all normal recessions before 2007, growth averaged 8%-9% in the quarters immediately following the official end of the preceding recession; following the June 2009 low point of the current recession, however, U.S. economic growth was barely half that averaging only 4%-5%. In 2010 it further trended down. And in the first quarter of the current year, 2011, it was only 1.8%. For the second quarter of 2011 it will almost certainly fall below 1.8%.

The recovery from the June 2009 recession trough actually lasted only 12 months. The U.S. economy suffered a relapse by the summer 2010. Unemployment started rising in June 2010 and continued for the next three months and home foreclosures hit record highs by August 2010. Nearly all other indicators recovered, at best, only half of their previous losses by late last summer.

This led to the Federal Reserve Bank of the U.S. policy of pumping another $600 billion into the economy last fall in the form of direct bond purchases from the public, a policy called Quantitative Easing 2, or QE2. That effort is now over and comes to an end this month, June 2011, however. The Fed policy succeeded in giving a final, last boost to the stock market, which is now dramatically coming to an end. It also succeeded in lowering the value of the US dollar and thus in temporarily stimulating export sales. But QE2 failed to lower mortgage rates much and resurrect the housing markets. And it totally failed to get banks to lend to small businesses and create jobs. Bank lending has fallen nearly every month since June 2009. Meanwhile, large businesses sit on their $2 trillion cash hoard and refuse to spend in the US to create jobs.

What the US economy is about to experience this coming summer 2011 is therefore a return of the economic relapse that began a year ago, in summer 2010, but that was temporarily checked by government and Fed policies late last year. However, now that the Fed is in retreat once again, now that states and cities are beginning to cut spending and raise taxes in earnest, and now that the Teaparty Congress and the Obama administration are about to dramatically cut federal spending as well–the combined effect will almost certainly result in another major economic relapse of the US economy in the months ahead.

For a further, more in depth analysis of the Coming Double Dip Recession, the reader is encouraged to read the writers forthcoming article in the July-August issue of Z magazine; or his predictions of an inevitable double dip in his recent book, Epic Recession: Prelude to Global Depression.

Jack Rasmus
June 1, 2011

COMMENTARY: In the past two months the US Labor Department has announced employment gains of more than 200,000 each month. Once again–as in the past three springs–we’re told that the job crisis is over and employment is about to recover. But a closer look at the jobs numbers shows every spring the numbers surge–only to sag and decline once again in the summer. The reason for the false jobs reports typical of March-June has to do with questionable statistical methods used by the Labor Department to estimate jobs; specifically the use of what is called the ‘net business formation model’ that plugs in an arbitrary number every spring into the actual job surveys and artificially boosts the numbers. In contrast, nearly all indicators in the US economy are converging this spring on a new retrenchment of the economy, and jobs, in the future. The jobs crisis is far from over, and will soon get worse–as this writer has predicted in his recent book, EPIC RECESSION: PRELUDE TO GLOBAL DEPRESSION.

‘WHY MARCH-APRIL’S JOB GAINS WILL COLLAPSE THIS SUMMER’ by Jack Rasmus, as appears in the public blog, TRUTHOUT, May 22

“Every spring for the last three years the business press and government policy makers declare with great fanfare that the job markets in the US have finally turned the corner; sustained recovery in job creation has begun. But every summer following t heir pronouncements the opposite occurs: employment and job creation retrenches from the spring and declines.

In recent months the US Labor Department has reported that jobs for March and April 2011 grew by more than 200,000 each month. Apart from the fact that 130,000 new workers enter the labor force each month, and therefore the net gain is really only 70,000 (and a third to half of gains represent part time and temp workers), the 200,000 jobs represents an apparent relative improvement over the dismal job creation picture since last June 2010. But appearances are deceptive, and sometimes even false.

How real is the job growth in recent months? And will it continue for the remainder of 2011? Our answer to the first query is not very and to the second, not likely. Here’s why.

If the past three years, 2008-2010, are any indicator, employment gains that occur in the spring are not a true, reliable indicator of actual job creation. And the gains of this spring will once again likely disappear in the coming summer-fall of 2011.

The reason has to do with serious problems with the way the Dept of Labor calculates employment gains every spring, and in particular during the 2nd quarter of April-June. When the economy is growing, the problems in calculation are minimal. But when the economy is in a deep downturn, or remains stagnant, the problems are exacerbated.

At the heart of the calculation of employment problem is a practice the US Labor Department employs called the net new business formation model, officially called the Business Employment Dynamics model (BDM). Every spring the Labor Dept. plugs in a number of job gains from this model into the Current Establishment Survey (CES) which gathers the actual data on job totals in the economy from more than 400,000 establishments or businesses. The raw data on actual jobs created from the CES is relatively accurate. But the BDM is not. The BDM is not an actual tally of jobs. It is a convoluted model that estimates how many jobs are created from the formation of new businesses minus the number of companies going out of business. The numbers for the creation of new businesses, and corresponding new jobs associated with those new businesses, comes from state unemployment insurance records that are a minimum of 9 months old. And by the time the data is recorded, it is at least one year old. On the other hand, there is no accurate data on the death of old businesses. So the Labor Department takes the number for new businesses, a year ago, and picks a number for death of old businesses (for which there are no records), and then plugs the net result into the actual number of jobs obtained from the regular CES survey of jobs for the month. But that’s not all. The plug in number is not only from data a year old. It is an historically averaged long run assumed number. So new business formation from years ago, when the economy is doing well, further upward biases the jobs in the model when the economy is in a deep downturn. Even the Labor Department itself admits, even in a year where total non-farm employment declines, the residual net birth-death employment component is positive. We can have a major collapse of small businesses by the hundreds of thousands a month during a recession, which is what in fact happened and still continues to happen, but nonetheless the addition to jobs is positive.

What this all results in is a falsely boosted number of jobs created from the BDM model that are added to the 2nd quarter raw jobs numbers. The spring jobs numbers thus are always heavily inflated.

The Labor Department then takes the models inflated numbers, adds them to the actual CES raw jobs numbers, and then seasonally adjusts the combined numbers upward every spring-2nd quarter. Voila! We get a misrepresented improvement in job creation numbers every spring. But the false boost in job creation in the spring-2nd quarter declines just as quickly in the summer-fall 3rd quarter when the BDM and seasonality adjustments level off.

Looking at just the actual, raw jobs data from the CES survey for the 2nd quarter for the last several years, compared to the preceding 1st and subsequent 3rd quarters, shows how the gains of the 2nd quarter always run-up compared to the first and then collapse in the 3rd. This data is from the US Labor Departments CES for the past four years.

TABLE 1
Employment Gains/Losses 1st Through 3rd Quarters
2007-2011
(in thousands of jobs created per quarter)

Years   Quarter 1   Quarter 2   Quarter 3

2007   -2,310        +2,620           -643

2008   -2,033        +1,636          -1,427

2009   -4,122         +663             -1,092

2010   -1,677     +2,517               -174

2011   -2,385

When the above raw data from the CES combined with the BDM is subsequently adjusted for seasonality, the result is the typical rosy picture for job creation reported every 2nd quarter for the past four years by the Labor Department. As Labor Department representatives admitted in a public online Q&A session on the BDM model, at which this writer attended, months with generally strong seasonal increases such as April, May, June generally have a larger positive birth-death factor. When that seasonal upward bias disappears in the remainder of the year, jobs then collapse once again.

The problem with the BDM is that it does not reflect any actual job creation data. It is a model, not an actual survey or census of jobs. It is derived from a long run historical average for new business creation (and thus jobs), which includes economic growth periods when creation is higher than in recessions, when creation may in fact be negative for many months. It does not pick up actual business deaths and therefore job destruction. It is based on data that is lagged at least a full year. It results in a gross overestimation of net new jobs created, and in the spring in particular when seasonality adjustments are factored into the raw data.

What it all means is we can expect a retrenchment on job creation this coming summer once again. Nearly all economic indicators are pointing to a slowdown in the US economy. Housing is in a double dip, with record level collapse in prices, housing starts, sales, and just about everything else. Manufacturing has begun to level off as the global economy slows in turn, with Japan and UK and the Euro periphery in or entering new recessions, and China, Brazil and India taking action to slow their economies. Services growth in the US is also slowing, as the US consumer is hammered by increases in gas and food prices, as well as by continuing double digit costs of health care, education, and local taxes. State and local governments are on schedule to lay off at least 400,000 in the coming fiscal year, having sacked 300,000 last year. And the Federal government, where jobs have been flat, will lay off hundreds of thousands more if current directions in budget cutting are any indicator.

So don’t get too excited about US government jobs reports in the 2nd quarter. And hold onto your hat. The jobs crisis is far from over.

Jack Rasmus
Jack is the author of EPIC RECESSION: PRELUDE TO GLOBAL DEPRESSION, Pluto Press and Palgrave-Macmillan, May 2010; and the forthcoming OBAMAs ECONOMY: RECOVERY FOR THE FEW.

COMMENTARY: For much of the past year conservative governors, the business press, and anti-union forces have been pounding the drum that public employees wages and benefits–and especially their pensions–are the prime cause of States’ budget deficits. A public employee pension funding gap ranging from $500 billion to $2 trillion is sinking State budgets, it is argued. But States budget deficits are caused by tax restructuring for decades favoring business and wealthy households, by failed speculative investments, and deep and frequent recessions followed by chronic poor job recovery.  Now new evidence has appeared in a report by Whitney Associates LLC indicating today’s pension funding gap of $1 trillion has been caused all along by politicians diverting pension plan contributions to cut business taxes and for spending elsewhere. Public employees have thus been subsidizing States’ budgets with their pensions for more than a decade, not undermining them. That created the pension gap. And now in a classic case of ‘blame the victim’, workers and their pensions are being blamed for the budgets they’ve in fact been subsidizing.

‘NEW EVIDENCE ON PUBLIC PENSIONS AND STATES’ BUDGETS,’ by Jack Rasmus, May 19, 2011

“A new study released May 18 by a pro-business source, Meredith Whitney Advisory Group LLC, confirms what this writer and others have been pointing out about current State budget crises: namely, state employees pensions and retirement health benefits are not the cause of States current budget deficits. Moreover, the underfunding gap in state employee pensions that does exist has been due primarily to state politicians and pension fund managers having failed to make necessary contributions to state pension funds for more than a decade.

The Whitney report estimates that about $1,000 billion of (states) spending over the past decade came from not adequately funding pensions, according to the business newspaper, The Financial Times. The Times further notes that the research concludes that state debt has surged over the past decade as states have subsidized budgets by not adequately funding retirement pledges.

In other words, the states diverted contributions to pension funds on a massive scale of $1 trillion, in the process creating the current pension funding gap, and then used the money to finance spending excesses elsewhere. They also used the diverted funds to offset billions in revenue loss due to widespread reduction in business taxes, in an escalating state vs. state race to the bottom aimed at competitively lowering business taxes in order to lure companies to their own state. The race to the bottom in state corporate taxes continues to this day, and is in fact accelerating

So public workers have been, in effect, subsidizing State budgets for years, not draining them. And not only have they been subsidizing state budgets, but the diversion of contributions to their pensions has enabled states to cut business taxes as well.

Whitney summed up her report in a guest editorial piece in the Wall St. Journal on Wednesday, May 18. In the article she points out The States have racked up over $1.8 trillion in taxpayer supported obligations in large part by underfunding their pension and other post employment benefits. She added that the off-balance sheet portion of that $1.8 trillion–i.e. the pension and retiree health benefit share of the total obligations constitutes $1.3 trillion of the total. In other words, $1 trillion and another $300 billion represents the contributions that should have been paid, respectively, into state employee pensions and health benefit funds but weren’t; funds that, if they had been paid, would have otherwise prevented the current $ 1 trillion public pension funding gap.

Politicians were able to get away with this scam so long as the economy was growing up to 2007 and other sources of tax revenues were maintained. But the recession blew a hole in the game by reducing all forms of revenues. The Obama administration plugged the hole temporarily with $260 billion in subsidies to the states in 2009-2010. Then the Obama subsidies disappeared and the hole reappeared by the end of 2010.

In anticipation of loss of funding from the federal government, the issue of underfunded pensions quickly came to the fore late last year. The crescendo of blame focusing on public workers pensions began escalating, led by the business press, Republican governors, and Teaparty politicians. Underfunded pensions obligations were targeted as the prime cause of States deficit problems–i.e. underfunded pensions that State politicians over the past decade themselves created by refusing to make contributions to their pension and retiree health benefit plans.

It is truly ironic that the diversion of $1 trillion in public workers pensions actually filled the states deficit hole for more than a decade, but public pensions are now being blamed for the budget deficits going forward.

Instead of addressing the real causes of states budget deficits, the politicians focus is on cutting public workers pensions and health benefits. It is a classic case of blaming the victim (i.e. public workers) for a crisis politicians created by diverting pension fund contributions to cover business tax cuts and other expenditures.

As an alternative solution, why not have the Federal Reserve Bank provide underfunded pensions a temporary $1 trillion bridge loan to cover the gap? After all, the Fed gave $9 trillion in similar loans, at an interest cost of 0.25%, to banks during the recent financial collapse–$1 trillion of which went to foreign banks. Pension funds are financial institutions. So why shouldn’t they be given similar bridge loans? That is, roughly the same amount that was given by the Federal Reserve to foreign banks? Public workers, who didn’t cause the crisis nor caused the underfunding gap, shouldn’t have to pay for a problem they didn’t cause. They’ve already given up $1 trillion in diverted pension and another $300 billion in retiree health care funds. Cutting their pension and health benefits would be requiring them in effect to pay twice for something they didn’t cause in the first place.

Jack Rasmus
Jack is the author of the book, EPIC RECESSION: PRELUDGE TO GLOBAL DEPRESSION, Pluto Press and Palgrave, May 2010; and the forthcoming OBAMAS ECONOMY: RECOVERY FOR THE FEW, Pluto Press, 2011.

COMMENTARY

In our preceding blog entry, “Teapublicans, Timidcrats, and the $14.3 Trillion US Debt”, we provided data showing how the $9 trillion added to the US debt since 2000 was due to accelerating war and defense dept. spending to the tune of $3.3 trillion, Bush’s $3.4 trillion tax cuts for the rich, unfunding prescription drugs, runaway health care costs and their effects on medicare and medicaid, and bailouts of corporations after 2007. But there are additional areas that have contributed to the crisis in federal revenues that have caused the deficits and debt as well. The article below addresses the role of multinational corporations, their offshoring of 2.9 million jobs in the US since 2000, and their major methods of tax avoidance and tax fraud. Their amount adds up to another hefty $1 trillion in federal revenue loss over the past decade. (This article appeared in abbreviated version in the blog, Working In These Times, on April 21, 2011).

“JOBS, OFFSHORING, AND THE US BUDGET DEFICIT” by Jack Rasmus, April 24, 2011

Whats the connection between the 25 million still jobless today, US Multinational Corporations, and the estimated $1.6 trillion 2012 budget deficit?

The deficit and budget cutting have been given massive amount of attention in the public press. At least a dozen different proposals from the Obama administration, Republicans in the House, Democrats in the Senate, deficit commissions, and others are now debated daily. But as proposals and programs for deficit cutting at the expense of social programs proliferate, no one is discussing how creating jobs for the 25 million currently unemployed would essentially resolve the budget deficit and eliminate altogether the need to cut Social Security, Medicare, Medicaid, and other programs.

One of the major causes of current high, chronic levels of unemployment in the US is offshoring by US multinational corporations. Less well known, however, is that these same multinational corporations are a significant cause of not only millions of lost jobs, but of trillions of dollars of lost tax revenue as well, thus contributing significantly to current and future budget deficits.

A recent report by the US Commerce Dept., a pro-business source, indicated that big multinationals like General Electric, Caterpillar, and big tech and drug companies over the past decade reduced their US work forces by 2.9 million while increasing their jobs offshore by 2.4 million. Apart from the harm inflicted on US working families, this development has resulted in the loss of huge amounts of tax revenue to the US federal government, contributing in a major way to the current US budget deficit and rising government debt levels.

For example, if one averages the total 2.9 million jobs lost in the US over ten years, and assumes an average pay of $43,000 a year over the decade, assuming further an average 20% personal income tax rate, the 2.9 job loss equates to an average annual loss in total income in the US Treasury of around $25 billion a year. That’s a total revenue loss of about $250 billion over the past decade alone. That total does not include the loss of additional state and local tax revenue, or the additional federal revenue sharing with the states that was required the past decade by the federal government to make up for the state-local tax revenue loss.

For the coming decade, 2010-2019, the lost tax revenue tab for the US Treasury would be significantly greater still, as even more jobs will likely be offshored and the average annual money income will be slightly higher than $43,000. The amount for the decade ahead would be easily in excess of $300 billion more.

But the total US tax revenue loss is even greater due to the direct loss of jobs from offshoring. The loss of tax revenue due to the loss of 2.9 million jobs (and an equal or greater number of lost jobs due to offshoring in the coming decade) is only part of the tax revenue loss picture attributable to U.S. multinational corporations.

For example, current federal tax laws actually give corporations tax breaks for moving jobs offshore. Shutting down facilities in the US in order to move offshore is considered an expense for the corporation in question, and it thus may deduct such expenses from its US tax liability on its operations that remain in the US. This means tens of billions more in lost tax revenue. Then theres the investment tax cuts given corporations that move offshore that partially pay for the cost of the capital equipment they purchase when they set up operations offshore. Both those items represent further tax revenue loss to the federal government.

These two loopholes, expensing and investment tax credit, used by companies that offshore jobs are difficult to estimate precisely, but together likely amount to at least another $150 billion dollars over the past decade, 2000-2009, and even more going forward for 2010-1019.

So we have $250 billion in lost jobs-based tax revenue for the past decade due to offshoring plus another $150 billion or so due to expensing and investment credit loopholes associated with the same offshoring and job loss. That’s a total of $400 billion.

But an even greater revenue loss is the result of these same multinational corporations refusing to pay their required foreign profits tax. By means of yet another loophole, with the exception of one year, 2005, for more than a decade now they have been defering paying taxes on foreign profits earned from their offshored operations. In fact, through various internal accounting devices they even redirect profits made in the US to their foreign subsidiaries, and thereby increase the amount that is deferred from paying taxes to the U.S. government.

It has been estimated by the global business periodical, The Financial Times, that as of mid-year 2010 non-financial US multinationals were sheltering $1 trillion in taxable revenue in their offshore foreign subsidiaries. They are holding the $1 trillion offshore, refusing to pay their share of taxes on it.

Back in 2004, the same multinational corporations played the same game’that is refused to repatriate taxes owed per the foreign profits tax. The total hoarded at the time was $700 billion. They complained then, as they do once again now, that their payment to Uncle Sam at the 35% corporate tax rate was higher than tax rates to foreign governments. In 2004, they were consequently able to get Congress to pass the Homeland Investment Act. That reduced their corporate tax rate on offshore earnings they chose to repatriate back to the U.S. to only 5.25% instead of the normal 35% corporate tax rate. Approximately $363 of the $700 billion was repatriated and taxed at the 5.25% rate. The reduced tax rate and repatriated $363 billion was taxed at the 5.25% rate in the understanding in the Homeland Investment Act that the funds would be used to create jobs. But the Act wasn’t implemented according to the letter of the law in 2005. Most of the $363 billion went to buy back company stock and to purchase other companies, which resulted in more job losses. The remaining $337 billion of the $700 billion never came back to the U.S.

The result of the nearly 30% lower rate (35% minus 5.25%) on the repatriated $363 billion was a loss of $108.6 billion to the US Treasury at that time. The other $337 billion was never taxed at all, which amounts to another $117.5 billion in lost tax revenue. The unpaid corporate taxes and revenue loss on the $700 billion at mid-decade, 2005, thus amounted to a total of $226.1 billion.

But even that’s not the entire amount of lost tax revenue. The $337 billion left offshore in 2005, and never repatriated at even the special one time 5.25% corporate tax rate in 2005, has since grown once again to $1 trillion by 2010, according to the Financial Times. At the 35% corporate tax rate that additional $663 billion (1 trillion minus $337 billion) amounts to still another $232 billion in lost taxes between 2005-2010.

And the $226 billion and $232 billion covers only US non-financial multinational corporations. It does not include offshore income hoarding and income diversion from the US to offshore by US multinational financial institutions. Conservatively, if banks and financial multinationals are added to the above figures, the grand total would be at least another $150 billion more.

Adding the preceding tax revenue losses due to multinationals offshoring of 2.9 million jobs, manipulation of loopholes, and both financial and non-financial multinational corporations refusal to pay taxes on foreign earnings according to US tax law the total revenue loss to the US government comes to more than 1 trillion.

Having gotten away with their offshore earnings tax reduction scam in 2004, multinational corporations are now once again playing the same lobbying game today in 2011. They are in the process of blackmailing Congress and the Obama administration to reduce the tax rate again on foreign earnings. Should they get their way once again in 2012, when Congress takes up the task of a major overhaul of the entire tax code, it will mean still hundreds of billions more beyond the $1 trillion in lost tax revenue every year for another decade to come.

Multinational corporations like General Electric and others argue the reduction in the offshore profits tax is necessary to create jobs while they simultaneously cut jobs by the millions and intend to continue to do so. They further argue that the US corporate tax rate is among the highest in the world. But the tax rate is only part of the picture. Actual revenues collected are a result of corporate tax loopholes, not just corporate tax rates. Together rates and loopholes add up to the actual tax take. The US has among the most tax loopholes of any developed economy in the world. As a result, corporate taxes in the US represent only 3.2% of GDP, one of the lowest tax takes in the industrial world.

Today the revenue and budget deficit stakes are even higher than they were during the past decade. All US corporations today, whether doing business offshore or in the U.S., want the corporate tax rate on operations in the US, as well as offshore, reduced to 25% from the current 35% rate. That proposal is already embedded in the current U.S. House Republican (Paul Ryan) budget. The 25% rate is also supported by the CEO of General Electric, Jeff Immelt, who heads up President Obama’s special trade council. And GE, it was recently reported, not only paid no corporate taxes in 2010 on its global income of $14.2 billion ($5.1 billion of that earned in the US), but actually got a check from the US Treasury for $3.2 billion in tax subsidy.

It appears President Obama has been steadily drifting in the same direction of the 25% corporate rate tax cut as well. After having run in 2008 on a platform that assured voters he would enforce the 35% on corporate offshore profits, and force multinationals to pay up on their offshore sheltering, in 2010 Obama abandoned the idea of enforcing the foreign profits tax altogether. It was shelved. Now he is moving in the opposite direction toward allowing even more corporate tax cuts.

This writers prediction is that in 2012 he will trade the corporate tax cut for a token increase in the personal tax rate on millionaires. The corporate tax cut will be justified as necessary to create jobs. The token increase in the top rate of the personal income tax will yield far less revenue than will be lost in cutting the corporate tax rate. But it will provide political cover. General Electric and other multinational CEOs will politely nod their heads and smile (and continue to collect their subsidy checks from the government). Net tax revenues will fall. The budget deficit will get worse. And GE and other heads of US multinationals will continue to offshore millions more US jobs in the years to come, thus providing even more evidence to the contrary of the myth that business tax cuts create jobs.

Jack Rasmus

COMMENTARY:

Current Budget Deficit debates consuming Washington politicians focus on social program spending cuts only. Republicans and their Tea Party allies have declared tax increases on the wealthy and defense spending ‘off limits’ for the deficit reduction agenda. Democrats allow themselves to be increasingly driven to this agenda. A closer look at the $14.3 trillion US debt and annual deficits shows, however, that the real causes of the deficits and debt since 2000 are: escalating defense and war spending, tax cuts for the wealthy and corporations, lost tax revenue due to chronic poor job creation, runaway medical care costs driven by insurers and for profit healthcare providers, Bush’s unfunded prescription drug program, and recent trillion dollar bailouts of corporations and banks. The following article provides the data and details. (This item will appear on the blog, Truthout, in early May)

TEAPUBLICANS, TIMIDCRATS, AND THE $14.3 TRILLION U.S. DEBT

President Obama on April 13 gave another of his now notorious maybe this/maybe that speeches. Raise taxes on the rich, he said. But in the same breath announced everythings on the table. This time the subject was the U.S. debt and deficits, as he responded to the policy gauntlet thrown down by the Teapublican party last week.

Last Friday the Democrats blinked once again and then caved in once more to the Teapublican deficit cutting offensive. After several weeks of so-called hard bargaining between the two parties in Congress, a compromise was reached. Some compromise. Two weeks ago the Democrats moved from their initial position of $6 billion in spending cuts to $11 billion, then moved their position a third time to $22 and finally a fourth time, with no Teapublican counter, to $38.5 billion. They ended up a mere $1.5 billion short of the position of House Speaker, John Boehner, and his fiscal wrecking crews initial $40 billion position at the outset of negotiations, thus earning themselves the new appellation of Timidcrats. As a former union contractor negotiator, this writer would love to face the Timidcrats across the bargaining table.

Smelling blood in the water, the Teapublicans quickly opened a second front as well last week, as the negotiations came down to the wire. Their fiscal darling, Paul Ryan, the likely future Teapublican vice-presidential candidate, hurled his draconian budget proposal across the bargaining table, targeting Medicare and Medicaid as the main source of deficit cutting to come in the next round of debate. Less noticed at the same time was the further Teapublican move that took defense spending off the table in future negotiations, joining their earlier untouchable topic of Bush tax cuts for the rich.

By maintaining momentum and thus control of the budget policy agenda, Boehner and crew have now cleverly succeeded in hedging in the Timidcrats by limiting future budget deficit cutting to Medicare and Medicaid in the short term and inevitably Social Security as well down the road.

But a consideration of the numbers shows conclusively that the current and projected budget deficitsand the current $14.3 trillion U.S. federal debtis the result of the very tax cuts and war and Pentagon spending that the Teapublicans have declared off limits. In fact, more than two-thirds of the increase in the federal debt since 2000 is directly attributable to wars and tax cuts for wealthy households, investors, and corporations. Heres why:

The total federal debt was less than $5 trillion in 2000 when George W. Bush came into office January 2001. Today it is $14.3 trillion, about 97% of the U.S. Gross Domestic Product, estimated to be around $14.6 trillion in 2010. So where did the roughly $9 trillion in additional debt added over the past decade come from?

War Spending As Cause of the $14.3 Trillion Debt

According to the U.S. Bureau of Economic Analysis, which maintains the national income accounts for the federal government, defense spending in 2001 was $342 billion. Thats Pentagon spending and doesnt include direct war funding which has been passed by Congress on a supplemental funding basis. By 2010 it was $698 billion, more than double.

If Defense Department spending had risen after 2001 at a rate equal to the inflation rate the rest of us had to deal witharound 2% per year on average for the decade instead of the actual 8.2% annual rate of increase for Defense Department spendingthen total Defense Department spending would have been a cumulative $1.526 trillion less than it actually was over the past decade. That is, if the Defense Department were limited to a normal 2% per year increase in defense spending from its base year of 2001, the US federal debt would be $12.7 trillion instead of todays $14.3 trillion.

The preceding paragraph does not yet take into account direct war spending on Iraq, Afghanistan, (and now Libya). According to the U.S. Congressional Budget Office direct war spending amounts to an additional $1.3 trillion. Thats a cost per U.S. soldier in Iraq-Afghanistan of $525,000 each. The CBO further estimates that if U.S. troop numbers are reduced to the 60,000 minimum expected to remain as the U.S. pulls out, by 2015 the costs will still continue to rise, to $1.88 trillion, roughly another $600 billion. But lets be good conservatives and not count that. In short, if we didnt have the endless wars, the $14.3 trillion federal debt would be reduced by another $1.3 trillion, lowering it to $11.4 trillion.

The combined $2.826 trillion has, of course, resulted in additional borrowing by that amount by the U.S. government. That means a further cost in terms of interest payments on the debt. Since defense spending runs around 20% of the US annual budget, we can add another $565 billion over the past decade to the total direct cost of 2.826 trillion. That raises the total cost of the wars and Defense Department cost over-runs to $3.381 trillion.

Even so, thats not the total cost of the wars. Theres the cost of Homeland Security, about $40 billion a year for each of the past ten years. The cost of nuclear weapons resides in the Energy Department budget, not in Defense. Thats more. Then theres the costs of CIA and the military component of US Aid. Lets not forget the future costs for vets medical, disability, and education benefits when they return. Thats also in other federal department budgets. And not least, theres the estimated $50 billion plus a year on black budget projects involving super-secret military research and development that isnt indicated in the federal budget. But we wont count any of that either.

Radical Tax Restructuring As Cause of the $14.3 Trillion Debt.

Between 2001 and 2004 George W. Bush pushed bills through Congress every year that cut taxes on wealthy households and investors capital gains, dividends, and inheritance. According to the Center for Budget and Policy Priorities, the total tax cut over the decade amounted to $3.4 trillion. 80% of that, or about $2.7 trillion accrued to the top 20% households and about half that to the wealthiest 5%. These tax cuts were extended by Obama and the Teapublicans last December for another two years, at a further cost to the U.S. Treasury of an estimated $400 billion. Add to this the approximately $320 billion in tax cuts passed in Obamas 2009 stimulus bill, and another $90 billion in Bushs economic stimulus package in the spring of 2008. Thats a total of about $3.5 trillion in tax cuts over the preceding decade lost to the U.S. budget.

The tax cuts were supposed to create jobs. But the Bush cuts between 2001-04 produced the weakest job recovery on record following the mild recession of 2001. It took a then record 46 months simply to recover to the level of jobs that existed in January 2001 before that recession. The period of actual job recovery, from mid-2004 to 2007, was also the briefest on record. Then came the collapse in 2007-09 and the worse job loss record since the 1930s, which some economists estimate will take 8-9 years just to return to employment levels of December 2007. History shows irrefutably that business tax cuts dont create jobs.

The chronic, slow and weak job creation also results in huge tax revenue loss. There are many estimates of what the tax loss from recessions of 2001 and 2007-09 and weak recovery after both recessions amounts to. Its certainly more trillions. But lets leave that out as well for now.

The conservative estimate of $3.5 trillion tax revenue lost to the US budget, plus the $3.4 trillion in war and defense cost run-ups, amounts to a $6.9 trillion contribution to the $14.3 trillion debt from these two sources alone. Thats more than 70% of the $9.3 trillion debt added since 2000.

The Remaining $2.1 Trillion

The two remaining major causes of the debt and deficits today are the recent bailouts of bankers, corporations, and investors by the Obama administration, and the accelerating rise in health care costs for the government (and all of us) that have driven the cost of Medicare, Medicaid, and prescription drugs to record heights.

Concerning bailouts, the 2009 stimulus provided $260 billion in subsidies to the states and cities in 2009-2010. However, it didnt resolve the state-city fiscal crisis that continues to worsen. Now that there is no more stimulus, the fiscal crisis of local government grows progressively worse. Other direct bailout costs include $500 billion in direct grants and aid to major corporations, like AIG, GM, the government agencies, Fannie Mae-Freddie Mac and others. Thats at least $760 billion in direct contribution to the deficit and debt.
Of course the banks got bailed out as well. To the tune of $9 trillion. But that was done through the U.S. central bank, the Federal Reserve, largely by means of 0.25% free money loans. But that $9 trillion does not show up in the federal budget or add to the total federal debt. Its another set of books.

The fourth, and last major cause of federal deficits and debt over the past decade can be laid at the doorstep of the health insurance companies, the for-profit hospital chains, and the prescription drug companies. George Bush s contribution to price gouging by this rentier-capitalist cabal was to pass a Drug Company Subsidy bill and then make sure it didnt get funded. That required borrowing and thus a further debt run-up of at least $500 billion and rising. Obamas contribution to the price-driven deficits in Medicare, Medicaid, and drugs was to utterly fail to control health care costs in his healthcare bill last year once he abandoned the public option. That failure to control costs will eventually doom the 2010 healthcare bill in the long run.

Meanwhile, in the short term, it has ensured the Teapublicans the policy hook with which to deflect the focus from the real causes of the current $14.3 trillion debt and chronic deficits. This failure to control health care costs, combined with the budget deficit and debt caused primarily by wars, runaway defense spending, and radical tax restructuring for the rich, has given the Teapublicans the historic opportunity to blame the retired, the poor, and those in medical need for the very same deficit and debt crisis that their tax cuts, their wars, and their bailouts created in the first place.

I think Ill go and find some Teaparty protesters to see if theyre interested in protesting on behalf of their Medicare again. But I dont expect the billionaires who funded their protests last summer will be willing to pay them to organize protests this time around.

Jack Rasmus
April 14, 2011

COMMENTARY:

What’s really behind the public pensions funding gap. Causes seldom mentioned by the press, intent on blaming rising pension benefit payouts, include the practice of pension ‘contribution holidays’, failed speculative investments of the past decade, pension managers’ fraudulent accounting assumptions, a decade long slow or no job growth, and use of pension funds to subsidize rising healthcare costs. The solution is simple. Read below.

“THE TRUTH BEHIND THE PUBLIC PENSIONS FUNDING GAP”
by Jack Rasmus

State governors across the nation, led by newly elected right wing Republicans (with several Democratic governors in tow), are whipping up anti-union sentiment by declaring public workers and their unions are the cause of state budget deficits. They argue that various labor costs are driving up their deficits, but the lead cause of those labor costs is overly generous increases public employee pension benefits.

But increases in public employee pension benefits are not the cause of the States budget crises. There are, indeed, serious pension funding gaps in many states public pension plans. But a close investigation of these gaps shows clearly they do not exist because of states granting public employees exorbitant pension benefits.

The real reasons behind the pension funding gap are several. First, weak and delayed recoveries from the recessions of 1990-91, 2001, and 2007-09 have meant feeble job creation and thus less contribution to pension fund balances. Here the phenomenon of jobless recoveries plays a critical role. Each recession over the last half century in the US has resulted in a longer time period for jobs to fully recover to their pre-recession levels. After the 2001 recession it took 46 months just to get back to a level of jobs that existed before the recession. Estimates today are it will take 84-96 months, or 7 to 8 years, for jobs to recover to 2007 levels. That’s twice as long. And that means a projected larger pension gap.

But theres an even greater reason why pension funds have ended up short of income today. And that greater reason has been building for more than a decade. Its what is called the practice of contribution holidays; that is, pension managers refusing to put the necessary contributions into the fundsa practice in the public sector that has been going on since the mid-1990s and even before that in the private sector.

Contribution holidays in turn were made possible by fund managers employing fraudulent actuarial assumptions about rates of return on fund investments and, secondly, by assuming they would hire large numbers of younger workers when, in fact, that hiring never occurred. Both gimmicks allow a pension fund to appear adequately funded when in fact it isnt. They permit fund managers to maintain that the pension has more income and fewer liabilities than it in fact actually has.
The result of contribution holidays and fraudulent actuarial assumptions in the private sector contributed significantly to the collapse of many private pension funds since the 1980s and their replacement with 401k pension contribution plans. Whats starting in the public sector today is merely a repeat of what happened already in the private sector. The goal, once again, is to replace real defined benefit pensions of public workers with nearly worthless 401k plans. What CEOs have been doing in the private sector for three decades, now governors are attempting to do as well.
In the 1980s there were over 100,000 of defined benefit pension plans in the private sector. Today there are around 28,000. The rest were dissolved or converted to 401k plans or hybrid versions called cash balance plans. That is, they were in effect transformed into 401ks and thus privatized. The typical conversion resulted in a payoff to employees to transfer to a 401k that was barely half that compared to what they would have received in total benefits from their prior defined benefit pension. Today the average balance in a 401k is about $18,000. Thats all to fund an entire retirement period! The governors now want to do the same, to complete the shift to 401ks and privatization of the pensions in the public sector much like that already achieved in the private sector.
Inadequate pension funding due to recessions and weak job creation, due to the constant declaring of contribution holidays, and due to actuarial fraud are not the only causes of under-funded public pensions today.

The pension funding gap has also been magnified several fold since 2006 as a consequence of public employee pension fund managers gambling on risky speculative investments. Prior to 2006 and the passage of the so-called Pension Protection Act, public pension fund managers werent allowed to partner with Hedge Funds and other high risk financial institutions in high risk investments. After August 2006 it has become a widespread and common practice. After the Pension Act of 2006 pension funds were permitted to make loans to Hedge Funds and Private Equity firms, as well to plunge directly themselves into speculating in subprime mortgages and financial derivatives of all kinds. The 2006 Pension Act also permitted still further contribution holidays.
The result has been that since 2006 all pension funds have incurred great losses as a consequence speculative investing. These losses have added significantly to the pension funding gap in the public sector. It is estimated that public pension funds lost around 25%-30% of their total asset value in 2008-2010 as a result of their foray after 2006 into speculative investing in risky assets like subprimes, derivatives, foreign exchange, and the like. Most pension funds are considered adequately funded and are thus AAA quality if they are 85% funded. A loss of 30% means a funding drop to around 50% funded, as is the case of some of the worst funded state pensions like Illinois state pension fund. But a funding fall of 30% is, on average, about the funding gap attributable to the recent recession and speculative excesses of fund managers. Is Illinois worst case funding gap therefore solely the cause of these non-employee factors? It appears so. If Illinois is typical, then it may be that much of the current funding gap is due to investment lossesnot due to public employees pension benefit hikes.

Still another possible cause is escalating health care costs. It is a well known fact that Federal tax law allow businesses to take money from their pension funds to cover costs in their health benefit plans. While states don t pay taxes to the federal government, could the same diversion of funds in the public sector explain part of the pension funding gap? It would at least warrant an investigation.

Local government (city) employees pensions were especially hard hit by investments in over the counter derivatives interest rate swaps, which banks and other financial institutions talked them into in the run-up to the 2007-08 financial collapse. Their pension funding gap consequently grew even further as the pension funds experienced major investment losses. It is clear therefore the pension funding gap is not the consequence of escalating pension benefits of the average or even bottom 90% of the public employee labor force but is ultimately caused by the banks, by bad investments by public pension funds managers, by fraudulent accounting practices, by fund managers failure to make appropriate contributions to the plans, by recessions, by diversion of funds to cover rising health costs, and by past Congresses and Presidents permitting pension funds to gamble and speculate with workers retirement incomes.
Therefore before declaring employees pension benefits increases as the cause of the gap, a detailed investigation state by state should be undertaken to determine exactly how much these preceding non-employee causes have been responsible for each states pension funding gap.

Yet State governors, led by Republicans, are instead driving ahead and placing the blame on public employees and making them pay for the gap in pensions with their wages, jobs, and health care benefits. Their goal is converting state defined benefit pension plans to 401k plans and so-called cash balance plans that are a preliminary to 401ks. This conversion will lead in the public sector, as it did in the private before, to eliminating at least half of what public employees would have received in pension benefits. It will lead to the destruction of retirement security among workers in the public sector, just as it had previously among workers in the private.

Why should public workers pension benefits be reduced to resolve the funding gap when they arent the fundamental cause of it in the first place? Why not make those who created the pension funding gap pay the Hedge Funds, Banks, Insurance companies, and other financial institutions that were responsible for the massive investment losses and the pension fund managers who negligently risked workers pensions? Or the politicians who let them? And don’t forget the government regulators who looked the other way while it all happened?

Making the real perpetrators pay for the funding gap will take time, critics say. And the funding gap is now. True. But why not, in the short run, temporarily stabilize public employee pensions (and thus a good part of States budget deficits) by simply making the Federal Reserve provide direct loans to the pension funds at the same cost of 0.25% that the Fed has provided loans to other financial institutions the past two years. After all, pension funds are also financial institutions. And Fed loans wont add a cent to the federal or state budget deficits as an added plus.

It should not be forgotten that the same Federal Reserve provided $9 trillion to banks during the recent crisis of which $1 trillion was loaned to foreign non-US banks! If the Fed can loan $1 trillion to foreign bankers and their wealthy bondholders and investors, why cant it do so to protect the retirement of millions of US workers in the public sector who are the victims not the criminals responsible for the public pensions crisis.*

COMMENTARY:

The past two months, February and March 2011, showed a higher total jobs creation than had preceding several months. Business press pundits and the Obama administration now hail the numbers as showing jobs have finally turned the corner, but a deep look at the numbers shows something quite the contrary. The following article published later this week by the author challenges the official view.

“March Jobs Numbers: A Contrarian View”

by Jack Rasmus
April 3, 2011

On Friday, April 1, the U.S. Labor Department released its numbers for jobs and unemployment for the month of March. It reported 216,000 net new jobs created in March, after 192,000 the previous month. The two months are heralded as a definite shift in the labor market and jobs in the U.S. Business pundits at the New York Times declared the results represent a solid record in job gains, kicking (job creation) into high gear. Obama and the administration are calling it clear evidence of a new momentum in job creation, bragging that about 1.3 million jobs were created in the past 14 months since January 2010. However, a closer look at the numbers reveals that continuing, and emerging, problems in the jobs market in the U.S. should be of great concern.

About 658,000 jobs were created in the past three months, since the beginning of 2011, according to the Labor Dept. But the same data show 798,000 workers left the labor force over the same period. In other words, more are giving up finding a job than are locating one. The number is ever worse when the past 14 months are considered. 1,353,000 found jobs but 2,121,000 left the labor force. A jobs market truly recovering does not experience that kind of  massive number of discouraged workers leaving the labor force. Quite the opposite. A truly recovering labor market is characterized by large numbers of discouraged re-entering the labor force. Something else is going on here.

A closer look at the 1.3 million shows further interesting characteristics. First, more than 400,000 of the 1.3 million represent growth in involuntary part time and temp agency jobs, about 297,000 temp jobs and 117,000 part time jobs. These are jobs that pay 60%-70% of normal wages and virtually no benefits. Moreover, the 297,000 temp jobs reflect only temp agency hires; at minimum another 150,000 of the 1.3 million are temp workers directly hired by companies themselves. In other words, almost half of the 1.3 million are low pay, no benefit temp and part time jobs.

Another notable characteristic is that the 1.3 million private sector jobs created the past 14 months reflect a delayed recovery from the double dip in the job market that occurred last summer. From June to September the economy lost hundreds of thousands of jobs during the four months. The jobs gains since October represents a recouping of those jobs lost last summer, not a true net gain.

A breakdown view of the job growth by major sectors of the economy – Manufacturing, Construction, Government, and the Service Sector reveals another interesting fact. That is, only the Service Sector has clearly generated job creation to any significant extent. Manufacturing created a net growth of employment of only 110,000 over the past 14 months. Construction has experienced a net loss of 122,000, essentially offsetting the manufacturing growth. While the manufacturing sector experienced a small boomlet in production last year driven by exports, and produced significant profits for its companies and their investors, this boomlet has produced little in terms of employment gains. Manufacturing today only represents 7% of the entire US labor force, after decades of offshoring and outsourcing. Manufacturing may contribute significantly to total output and GDP in the US in a recovery, but it will never lead a jobs recovery from recession.

Construction today is even a worse condition. It is mired in a bona fide depression, on a par with the 1930s. New construction and housing starts are down 75% from pre-recession highs. Foreclosures are approaching 10 million (out of about 54 million mortgages). And home prices are now in their own double dip as well. 89,000 of the 122,000 job loss in construction over the past 14 months have occurred in the past three months.

Government job creation is no better. It declined by 313,000 in the last 14 months, with 93,000 of that total occurring in just the last three months. And that’s only the beginning. With States and cities planning major layoffs at mid-year and beyond, job losses totaling 500,000 this year in government are not out of the question.

Only the Service sector has actually added private sector jobs to any extent over the past 14 months and since the start of 2011. Of that sector’s 1,386,000 jobs created, however, many have occurred in the retail, hospitality-leisure and business services industries; that is, industries consist overwhelmingly of part time and temp jobs. The previously noted 500,000 plus part-time and temp jobs have been largely concentrated in this sector.

At the rate of 192,000 and 216,000 jobs created the past two months, assuming 130,000 new entrants into the labor force each month we have only a net gain of 70,000 jobs a month. At that rate, the economy will not return to its pre-recession total employment level of December 2007 for another 70.2 months. In short, that’s not until the end of 2016. And that’s using the Labor Department’s conservative U-3 unemployment rate. Using the Labor Department’s more accurate U-6 unemployment rate, a recovery to December 2007 pre-recession job levels will not occur for 188.8 months; that’s 15.6 years, or not until around 2025.

A more accurate picture of a jobs market still deep in trouble is possible by other job market indicators as well. For example, there’s what is called the JOLT measure, or job openings to labor terminations ratio. This simply compares the number of workers looking for jobs, given the number of job openings by business. Today there are five workers looking for every job offered by business. That 5 to 1 ratio is essentially unchanged since January 2010. At the start of the recession it was 1.8 to 1.

Yet another alternative measure of the condition of the job market is the Employment-Population Ratio. This reflects how well jobs are being created in relation to the growth of the population. That ratio too is unchanged the past fourteen months, from 58.4 to 58.5 today.

How many workers are long term unemployed is still another measure. There, once again, not much has changed. There were 6,133,000 long term (i.e. more than 27 weeks jobless) fourteen months ago; there are 6,122,000 today.

Future job creation prospects for the remainder of 2011 and into 2012 are not as great as optimists in the Obama administration and the business press would have us believe. The current US picture is not one of broad based, robust jobs growth. Manufacturing and construction, i.e. sectors that historically lead a recovery from a recession, show no evidence as serving as engines of continued job growth. And the government sector shows an accelerating rate of job loss, soon to approach a half million. That leaves only the Services sector, composed heavily of temp and part time job creation.

Even the modest growth in U.S. manufacturing employment shows signs of now tailing off. Manufacturing has been driven up to now by exports. However, recent sources of U.S. export sales are now slowing. China and Brazil are both slowing their economies to deal with inflation. Japan has re-entered recession, even before the Tsunami-Nuclear crisis which will reduce its consumption of U.S. exports still further. And Europe continues to teeter on financial instability. Add to that the continuing crisis in the Middle East – North Africa, the further rise in oil and commodity goods prices, and it all collectively adds up to a significant decline in global export demand and in turn US export sales, US manufacturing output, and jobs. Manufacturing will thus provide no significant source for job creation going forward.

In even worse condition, construction jobs have no light at the end of the tunnel and will decline further as that critical sector falters further and foreclosures rise while home prices fall. Congress and the Obama administration’s apparent consensus to dismantle the housing agencies, Fannie Mae and Freddie Mac, will mean even less housing construction, sales, and more falling prices.

Finally, in addition to the minimum of 500,000 more jobs soon to be lost in the government sector in 2011-2012, it is estimated that 600,000 additional jobs will disappear in the private sector as well, should Congress pass in the next few weeks the Tea Party-Republican $61 billion of cuts in this year’s U.S. budget. And this precedes the even bigger 2012 budget fight about to begin in Washington after April 8, bringing unknown further budget cuts before the end of 2011. In short, even the uneven, tepid, and largely low-pay job creation in the Services sector the past 14 months will be more than offset in the coming months, as a result of forthcoming fiscal austerity and budget reductions by government at all levels.

Jack Rasmus

Jack is the author of the book, EPIC RECESSION: PRELUDE TO GLOBAL DEPRESSION, Palgrave-Macmillan and Pluto Press, May 2010; and the forthcoming OBAMA’s ECONOMY: RECOVERY FOR THE FEW, same publishers. His website is http://www.kyklosproductions.com and his blog at jackrasmus.com.