The IMF released yet another report predicting the global economic slowdown in progress. Latest is regional Middle East-N. Africa-Iran-Afghan-Pakistan economic growth forecast by IMF slowing now to 1% (Oxford Economics’ forecast even lower at 0.6% currently). Meanwhile, Europe/UK/Germany heading for recession, at less than 1% and falling. Hard Brexit now coming with UK Johnson as PM, Europe to slow faster and enter recession in next 6 months. In addition, Japan slowing to 1%. US 2H19 GDP to decline below 2%. China real GDP likely at no more than 4% and slowing. While sanctions are certainly depressing the Iranian economy, global recession in manufacturing now in progress, and falling global demand for oil, are likely even a greater factor.

Watch my video Youtube commentary on latest IMF forecast.


Listen to my 27 minute radio interview explaining how the primary function of both central bank (Fed) monetary, and government tax cut (fiscal) policy in the USA today in the 21st century is more about subsidizing capital incomes than stimulating investment in real goods & services to create decent paying jobs. Why low rates and tax cuts produce big savings to corporations that are then redirected to financial markets (stocks, bonds, derivatives, etc.) to offshore emerging markets, or to corporate mergers & acquisitions. The result is growing income inequality in US as the rich get richer from financial asset bubbles and foreign investing, as interest rate cuts and tax cuts for corporations-investors-1% wealthiest households has resulted in corporations redistributing $1 trillion a year since 2011 to shareholders in stock buybacks and dividend payouts. ($1.3T in 2018; $1.5T 2019 projected). Check out the last 7 minutes of the interview for my explanation why monthly US job figures reflect mostly hiring of part time and temp second and third low paid service jobs (now totaling 49 million per bankrate.com and payscale.com surveys), as US workers work more jobs to make up for lack of wage gains on their primary employment.

    To Listen GO TO:


A reader of this blog recently noted the magnitude of the debt problem in China and argued it will be the locus of the next debt-financial crisis–not Europe. Making good points in support of his view, my reply follows arguing it is not the magnitude of the debt load that is, by itself, key. True, the quantity of debt–and the quality of that debt–are important. But the ability to ‘service’ that debt (paying interest and principal when due) is just as critical. And that ability to ‘service’ in turn depends on the assured cash/near cash assets available, which depends on maintaining price levels and sales levels (i.e. revenue) and returns on near cash assets in order to make the payments. The various terms and conditions associated with the servicing may also be critical (i.e. can the borrower roll over the debt, what’s the interest rate and term structure of rates, can it legally suspend payments, are the covenants that relieve payments generous or not, etc.

Here’s the reader’s notable comments and my reply:

The Reader’s Comments on China debt:

I came across some of your writings and been reading for a few hours… I am curious to know why you seem to be thinking the financial crisis isn’t coming from collateral shortage in Eurodollar Markets ? Since baoshang 30 % haircuts, AA bonds no longer accepted, AAA 2 to 1 value only sovereign bonds accepted at face value in china repo. Eurodollar markets seem to want Sovereign Bonds and stopped accepting HY Bonds, Gold furious bid indicates Collateral problems, Gold collateral of last resort in money markets.

European banks are the starting crisis point, due to Trillions in USD loans to EM’s and china china has 3.5-4 Trillion US bond issuance, on paper borrowing 100 Bil USD + a Quarter… Then add 250 Trillion + of derivatives between Big 9 of New York and EU, the biggest financial collapse the world will ever see. China is the catalyst by far right now, they make Wall St look noble. Their 10 year isn’t being bid much which indicates serious cash flow problems in their banks, while every other sovereign bond in the world is being full blown bought, money dealers and banks running towards liquid and accepted collateral, credit cycle is done… Baoshang sealed it, no way European banks are making it out, Chinese collateral is bunk, not worth much and big haircuts, PBOC isn’t gonna cover much on foreign debt… Hengfeng bank failing now, 16 more to go.

I think you are hell bent on America and the ” Establishment ” but give credit where it’s due… China was the biggest cause to Inflation in this cycle, they will be the biggest cause to deflation, gravity Jack… What goes up, always comes down

Please let me know your thought process behind China not being the catalyst given they accumulated close to 80 % of world’s debt in this cycle ( Corporate, Local Gov, Household and Central Gov )… Price Per Income is 45-50 in Tier 1’s, their income to mortgage average in the country is 330 %, it doesn’t make sense the amount of leverage, everybody is indebted to their eyeballs with over 100 Trillion Yuan in shadow banking loans to consumer, their Consumption GDP is the lowest in the world in net terms, highest investment GDP in the world… I don’t get how you think they are even growing at 4 %, with debt servicing they are negative growth, M1 growth is horrendous in China

My Reply:

Indeed, China debt is extremely high, in all sectors, government, household, etc. But debt magnitudes are not the entire picture when it comes to an asset crash. Servicing of the debt is key, and in turn price levels and revenue from sales of output which generate the income with which to service the debt. When debt servicing reaches a point where income is insufficient and then defaults occur, that’s the threshold to watch. China has shown its willingness, and has the resources, to absorb defaults. Also, it can respond quickly before the expectations of creditors deteriorate too far, and they precipitate a general asset price collapse that begins to snowball. The US, EU, Japan-S.Korea can’t respond as quickly as China might. Also, China is still growing, although far more slowly than reported. That growth generates income for debt servicing. In contrast, Europe is not growing at all, hasn’t really since 2009, and has never really recovered from the 2008-09 and 2011-13 crises. Its bank lending is still mostly flat. Money capital keeps flowing offshore. Central banks’ QE has not gone into real investment in Europe but has been diverted elsewhere. Negative rates have not proven effective in stimulating bank lending in Europe. Non-performing loans totals are very large. QE has failed miserably and it will again when they try it again soon. In contrast, China can turn to boosting government investment quickly in lieu of revenue from exports now slowing because of the global trade slowdown and US trade war. Europe cannot or will not seek to offset its exports slowdown with government direct investment as an alternative. Its bankers driving policy and the Euro system have structured austerity systemically. It’s therefore far more dependent on export revenue but the global slowing of manufacturing and exports means less ‘income’ from revenue with which to service debt.

In short, my point is that magnitude of debt is not the only determining variable of financial fragility and instability and eventual financial crashes. Excessive debt levels and leverage are necessary conditions for a crisis, but the quality of that debt, the ability to service it, the means and willingness of government to avoid or cut short defaults preventing contagion, etc., are all important.

Read my equation in the appendix of the Systemic Fragility in the Global Economy book written in 2016. It considers the role of debt in relation to ability to service the debt and the numerous terms and conditions and covenants that may be associated with debt servicing.

I’m currently developing these equations further, using neural network data analysis to determine the actual multiple causal relations between government, household, corporate, bank debt as well as, within each of these sectors of the economy (government, household, business), the degree of causality between debt levels, quality of debt, income available to service the debt, and terms and conditions of debt financing.

But you’re right, the situation in China is worse than it appears. But so is Europe even worse. China debt may be higher in absolute terms, but Europe’s debt servicing ability, after eight years of double dip recession and near stagnant growth (what I call an ‘epic’ recession that still continues), is weaker than China’s ability to ensure debt servicing and thus avoid defaults contagion that sets off a general financial asset price crash. And let’s not forget EMEs like Argentina, Turkey, Pakistan, as well as India which has a very serious problem with its shadow banks. Their debt servicing ability may be even weaker than Europe’s.

I think the crisis will involve feedback effects between Asia (China, India, Japan) and Europe and EMEs. Where it first erupts is important. I’m leaning toward Europe as the initial focal point, although I could be wrong.

Europe’s biggest investment bank, Deutschebank, is in big trouble. This Sunday it will announce a major restructuring. It’s also a harbinger of a bigger problem with European banks in general, which are loaded with trillions of euros in non-performing bank loans they haven’t been able to shed since the crisis of 2008-10 (and subsequent Eurozone double dip recession of 2011-13).

Deutsche, the biggest, is among the worst shape, much like the largest Italian banks. Deutsche soon will announce this Sunday, according to reports, a 20,000 cut in jobs, as well as asset sales of entire divisions, as it pulls out of the US and other economies and consolidates back to Germany. (It formerly tried to challenge US investment bank giants, Goldman Sachs and Morgan Stanley, by acquiring the large US bank, Bankers Trust, several years ago but has now clearly lost out in that competition and is trying merely to survive.)

But even before the next financial crisis hits Europe, which is coming soon, Deutsche is already in the process of being ‘bailed out’. One means of bail out is forcing a merger with another large bank. That was recently attempted by the German government, with German Commerz bank, but the effort failed. Another bailout measure is to get the bank in trouble to raise capital by selling off its best assets. Now firesales of its better assets are underway. Another approach is to set up what’s called a ‘bad bank’ in which to dump its non-performing assets. That’s going on with Italian banks. But those solutions may not be enough should the bank’s stock price collapse further even more rapidly. At only $7 a share now, speculators could soon jump in and drive it to near zero, as what happened in the month preceding Lehman’s collapse.

Like Lehman in 2008, another major problem with Deutsche is the composition of its risky asset portfolio of derivatives contracts undertaken in recent years and the potential for it to precipitate a global ‘contagion effect’ should its financial condition worsen rapidly.

Deutsche currently holds $45 trillion in derivative trades with other institutions. And some sources and analysts are beginning to compare it with the Lehman Brothers investment bank collapse in 2008 in the US. Like Lehman, the derivatives connection is the historic channel through which contagion and asset value collapse is transmitted across other financial institutions, leading in turn to a general credit freeze across multiple financial markets in Europe. The giant US insurance company/shadow bank, AIG, over-issued and held trillions of Lehman derivatives which it could not pay when Lehman collapsed. Deutsche may thus represent a kind of Lehman-AIG in a single institution.

Whether the European Central Bank, ECB, could successfully bail out Deutsche in the event of a crash is another related question. Unlike in 2008, the ECB is no longer in as strong a position to do so. Its policies since 2015, of QE and driving down government interest rates to negative levels, may mean a Deutsche bailout could intensify a European crisis. An ECB bailout might inject even more liquidity into the European banking system, driving interest rates significantly further into negative territory. Negative interest rates already range from 64% to 69% of all government bonds in Europe.

A recent reader of this blog raised a series of questions about Deutsche as a repeat of Lehman and asked my response. The following are his questions, and my replies:

Reader’s Question:

The largest bank in Germany is Deutsche Bank,and it is also the largest bank in the EU. Its stock has been plummeting. It laid off 20,000 employees, and I noticed that its PE ratio is 600 to 1, which means it is earning about 10 cents per share. It seems like it is getting close to being a zombie bank. The bank, however, has 45 trillion dollars in derivatives, and these appear to be heavily interconnected to U.S. banks. Can a bank be too big to fail and too big to save? If it goes under, is there a chance of contagion? Can a bank collapse and yet leave its $45 trillion in derivatives unaffected? On a scale of 1 to 10, what are the chances of a Lehman collapse and global contagion with Deutsche Bank in your view

My Reply:

The percentage potential for collapse is probably around 7 out of 10 should the next recession hit Europe. It also depends of course on which institutions are counter parties to the $45 trillion. That’s unfortunately not knowable because of the opacity of derivatives contracts (except for rate swaps). And it also depends on how financially fragile other institutions are, apart from the Deutsche-derivatives connection. My view is that European banks and financial institutions are quite fragile–given the trillions in non performing loans, negative rates, etc. Along with certain emerging market economies’ sovereign debt (and dollarized corporate debt) loads (Argentina, Turkey, etc.), India’s shadow banks leverage and NPLs, and China’s debt, Europe banks may prove the next locus of the global financial crisis on the agenda. That more general financial fragility (and thus instability) would certainly raise the probability of Deutschebank repeating the role of Lehman in the next crisis. In short, you can’t evaluate Deutschebank just in relation to its (and its counterparties) derivatives exposure. Contagion will not occur just within a certain subset of the banking system; it will soon spread via expectations to other sectors of the credit system (as it did in 2008), and that will quickly feedback negatively on the Deutschebank-partners derivatives exposure condition.

IN an important development challenging the dominance of the US Dollar globally, and the associated US-dominated ‘SWIFT’ currency exchange payments system, Europe launched its alternative to SWIFT, called INSTEX, to get around US sanctions on Euro-Iran trade.

    Watch my video 5 minute interview on the development.



Watch my recent video interview with RT International on whether current China-Russia efforts to trade using their own currencies, in lieu of the dollar, will soon mean a displacing of the US dollar as the global trading and reserve currency.

Go TO: https://www.youtube.com/watch?v=dtDjqL8Q1kg&feature=youtu.be

Capitalist ideology apparatuses (i.e. talk shows, cable news, think tanks, business press editorialists, etc.) have been gearing up in recent months, targeting new progressive ideas that have begun to emerge: medicare for all, modern money theory, green new deal, Socialism, etc. Ideology defined here refers to purposeful manipulation and distortion of ideas in defense of the economic interests of dominate elites and classes.

This ideological manipulation, which aims at misrepresentation and distortion of original ideas, is based on various techniques of language transformation. One such technique is to delete reference to essential propositions that are part of the original idea; to add contradictory propositions to further distort the original idea; to invert the logic and relationships of elements in the idea; to reverse the causal relationships between the elements; to substitute correlations for causation, etc. (For more detail on the methodology see my various blog pieces at jackrasmus.com on how ideology works in economics, as well as my forthcoming book, ‘The Scourge of Neoliberalism’, Clarity Press, September 2019).

Ideological manipulation is not new. A number of such notions lie at the heart of Neoliberalism. Among Neoliberalism’s most notable examples are nonsense like ‘free trade benefits all’, ‘business tax cuts create jobs’, ‘inflation is always due to too much money chasing too few goods’, ‘markets are always efficient’ (and the corollary, government is always inefficient); ‘productivity determines wage gains’, ‘central banks are independent’; ‘recessions are caused only by ‘external’ shocks to an otherwise stable system’; ‘the crash of 2008-09 was due to a ‘global savings glut’, and so on. It can be shown that none of these notions are supported by the facts

Attacks by the ideological apparatuses on ideas of Medicare for All, green new deal, socialism, and Modern Money Theory, are the new ideological offensives, now being added to the old.

Wall St. types are now leading the charge. One of the main champions of distortion from among their ranks is David Rubenstein, a host of many well known (among investors and watchers of Bloomberg news TV) interviews of famous US capitalists, and who is also a co-founder of the Carlyl Group, one of the biggest Private Equity firms (and thus shadow banks) in the world. (The Bush family has been a big investor in Carlyl). Rubinstein has been giving interviews all over on the media and attending elite conferences, attacking MMT, green new deal, medicare for all, etc. He always ends up as well with the further attack on social security retirement, mouthing the typical garbage that it’s going broke in a couple of years and therefore benefits must be cut, especially raising the retirement age (to as high as 80).

Rubenstein was joined this past week by another of his shadow banker buddies, Paul Singer of the big hedge fund Elliott Management. Together they were interviewed by Bloomberg hosts at the Aspen Conference, a gathering of the US economic elite. Bloomberg hosts fed them loaded questions about Medicare for all, social security retirement, MMT and all the rest.

The essence of Rubenstein-Singer’s attack on Medicare for All, is to grossly distort its cost, while arguing 180 million Americans love their private, employer provided health insurance. In distorting the costs they echoes the same themes being peddled around the media now by lesser hired, and well paid ideologists, in the business media, think tanks, cable shows, etc.

The gist of the attack on Medicare for All is they conveniently ignore the facts that 162 million US workers (the size of the US labor force today ) pay only a tax of 1.45% on payroll while working, and the nearly 60 million over age 65 pay only a $135 annual deductible when retired when they collect Medicare.

Compare that ‘cost’ to those households still on private health insurance. According to Kaiser Foundation’s latest report this past week, the cost of premiums for private health insurance have risen from $5000 a year in 2001 to $20,000 a year 2016 (no doubt higher now under Trump). That $20k is $1,666 a month. And that’s not counting the tens of millions who can’t afford that and who have had to opt for the barely affordable private insurance, now paying $2k to $5k annual deductibles, thousands of dollars more in co-pays, and even so facing hundreds of health procedures not even covered. And then there’s the tens of millions who can’t afford anything–even Obamacare since their states won’t participate or, if they do, the premiums have escalated beyond affordability.

That’s a comparison of Medicare, with a cost of just low hundreds of dollars a year, compared to private health insurance costing $20k a year on average and more, and sometimes far more. But you’ll never hear that comparison or facts from Rubinstein-Elliott or the other of their ilk. That’s because they simple ‘delete’ reference to such facts when they talk about and attack Medicare for All. But that’s how ideology works. Delete the facts, insert false facts, invert the logic, reverse causation, argue correlation is causation, etc. It’s all about ‘language games’ to distort the truth, so they can attack and propose their solutions that benefit them and not the rest.

Then there’s Rubinstein-Singer’s further ideological argument that 180 million want to keep their private health insurance coverage instead of being forced onto Medicare. Well, if the rich want to pay for private coverage on top of the minimal healthcare tax, they can certainly do so in the proposals for Medicare for All on the table right now. But it’s not likely that the more than 100 million US households now being gouged by private health insurance will want to keep those token plans and not want to go to Medicare. If they were so happy with their current health insurance, why do 74% of voters now say they are dissatisfied with the current health insurance system?

And there’s the growing ideological assault on anything that has to do with making the rich pay taxes or having government spend on programs that benefit the rest of us, not just corporations and investors.

What used to be accepted social programs in the 50s, 60s and 70s, designed to provide income for the middle class and working class (really the same folks), is now painted with the broad brush of ‘socialism’. Invest in alternative energy, that’s socialism. Provide relief to the tens of millions of students in debt to the tune of $1.5 trillion, that’s socialism too. Medicare? That’s really socialism. No tuition at public colleges…socialism. (But let government gouge students with 6.8% interest rates on student debt, while letting banks borrow at 0.25%, that’s ok. That’s not socialism). Stop writing government checks ($79 billion last year) to corporations with big profits, that’s socialism for the capitalists but that kind of socialism is ok). What were in past decades ‘normal’ social programs and spending are now being conveniently labeled ‘socialist’. But let them continue with that ideological theme, I say. It’s convincing two-thirds of millenials, now the biggest population group, that they prefer ‘socialism’ to the present capitalism, according to recent polls. (Of course, ‘socialism’ to them so far means ‘anything but the above’, but that’s a good place to start).

Then there’s the more sophisticated ideological attack on the emerging idea of Modern Money Theory, or MMT. Rubinstein-Singer are really against that as well. MMT in one of its propositions (elements of meaning of an idea) calls for fiscal-social spending by the central bank, the Fed, creating money and using it to fund infrastructure spending and social programs that would benefit the rest of us. It’s interesting to watch Rubinstein & Co. attack that. They say, ‘Oh, it would mean excess money and inflation, create too much debt at the central bank, it would mean a rising national debt further out of control, and so on.

But wait a minute. That’s just what the Fed did since 2009 with its ‘quantitative easing’ QE program that bailed out the banks with trillion dollar cash injections, followed by zero borrowing rates for bankers like Rubinstein and Singer for 7 more years. One didn’t hear Rubinstein-Elliott and friends complain about that QMT, ‘QE Money Theory’, because it directly benefited them. Their shadow banks–private equity firms, hedge funds, etc.–got to borrow at 0.15% for years after they were even bailed out (by 2010). They got free money from the Fed until 2016, and then the cost of borrowing went up a miniscule couple of percentages (still way below the 6.8% that students had to keep borrowing at). They loved QE and never complained about debt, inflation in stocks and bond prices, or the massive income and wealth they accumulated personally because of QE.

QE was just MMT turned on its head. Now the theorists of MMT are just trying to turn the tables on the Rubinsteins, Elliotts, et. al., by saying let’s do QE for the rest of us now. But no, in their view, the rest of us have to continue to settle for austerity in government spending–i.e. cuts in food stamps, education, transport services, medicaid, etc. We have to pay higher taxes to finance Trump’s $4 trillion tax cuts for corporations, investors and the wealthy 1% households and for Trump’s annual $100 billion a year hikes in war spending.

QE, low rates, and tax cuts are for them; 6.8% for students and tax hikes are for us. And don’t dare ask for Medicare for All, green new deals, free tuition, student debt relief, etc. It’s too costly. It won’t work. It will wreck the system, according to Rubinstein-Singer.

But the policies of the Rubinsteins, Singers, and the Goldman-Sachers and Trump now running government policy—i.e. shadow bankers all–have cost too much. Haven’t worked. And have already ‘wrecked the system’.

What they want is to continue the annual $trillion dollar plus distribution of income to their class via stock buybacks and dividend payouts ($1.3 trillion in 2018 and projected $1.4 trillion this year). Tax cuts and cheap money (QMT/QE) have enabled that historic income redistribution via stock, bond, and other capital gains markets.

Medicare for All and expanding social security retirement by raising the ‘cap’ on social security plus taxing capital incomes; bailing out students with a financial transaction tax, funding a green new deal by reversing 40 years of tax cutting for the rich and their corporations–all will mean taking back some of their $1.3 trillion firehose of income redistribution since 2008. Rubinstein & friends know that. And they don’t want that.

So Rubinstein and his buddies are now touring the country attacking proposals that would do that, and socialism in general, by distorting, misrepresenting, and outright lying about what these programs mean. Using the various techniques of playing with language to change the original meanings. To arm their class with the ‘talking points’ to carry on the attack locally as well. To establish the ‘messages’ for their media to carry via various channels daily thereafter. To get naive economist-apologists to parrot and legitimize the economic ideology as economic science in their journal articles.

The fundamental message of their ideological offensive is: Socialism for the rich: good; socialism for the rest of us: bad. Tax cuts for the rich and their corporations: good; tax cuts for the rest: bad. Subsidy checks to profitable corporations: good; subsidizing of health care or education: bad. Free money from the Fed (QE) for them: good; free money from the Fed (MMT) for us: bad.

But that’s always been how ideology in economic policy works. Only the targeted themes have changed today. The methodology of language manipulation is the same. So too are the direct beneficiaries. Just pour the new wine into the old bottles and ‘waterboard’ it, if necessary, down our throats through repetitive messaging from the institutions that deliver the ideological messaging.

Dr. Jack Rasmus is author of the forthcoming book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, September 2019. He blogs at jackrasmus.com, and hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network. His twitter handle is @drjackrasmus.