The big topic of last week in economics was not the Fed’s decision to reduce rates, nor Europe-Germany’s continuing industrial recession nor the US-China trade war nor anything else. It was the near collapse of what’s called the Repo Market for bank lending based on US Treasuries. Since the eruption, the Fed has injected hundreds of billions of dollars into the market and plans to continue to provide hundreds of billions more between now and mid-October. It will likely continue to do so permanently from this point. What does the Repo instability represent? Is it the ‘black swan’ (or at least gray) signaling the next financial crash? Listen to my take and analysis on the importance of this event from my Alternative Visions radio show of Sept. 20, and the event as harbinger of what is likely more global financial instability ahead.

To Listen GO TO:



Dr. Rasmus dissects this past week’s spike in Repo (Repurchase Agreement) bank to bank lending market and what it means for growing financial instability in the US and globally. Candidate for financial market instability in US and worldwide are reviewed (junk bonds, BBB, leveraged loans, CDOs, etc., as well as India-Europe banks, China markets, Argentina, etc.). further slowdown of world real economy and trade underlying and interacting with growing financial market instability. Competitive devaluations via central bank interest rate and currency wars. Trump’s narrow view of tariffs and Fed rate cuts. Why the Fed was divided on last rate cut this week. In the midst of all this, the US Repo market rates spike to 10%. Official short term explanations not acceptable. Longer term more fundamental causes: Fed pulling money out of bank reserves via bond operations and balance sheet sell off in order to finance US $1 trillion plus budget deficits. Banks now addicted to more excess reserves after QE, financial structure changes since 2008, etc. Fed will now restart ‘QE Lite’ via Repo market injections (4 times this week). More Negative Rates worldwide and balance sheet ballooning again inevitable now. Fed and central banks policies no longer as economic stabilization tools but as main conduit of capital market incomes subsidization tools. Fed and central banks now secretely planning even more radical innovations next year.

Listen to my interview commentary on the Fed’s latest rate hike; why global economic slowdown and more indicators of US economy weakening will have greater net effect slowing US economy than jobs and consumers spending holding up economy; why Fed cut rates only 0.25%. Fed rates, dollar appreciation and Trump tariff-trade war nexus. My initial explanation of what’s going on in the Repo market where rates spiked to 8%: Fed selling off its balance sheet and desperate financing of US annual $1T budget deficits. Is it a harbinger of financial crisis brewing? Is new QE coming soon?



Watch my 7 min. video interview of the Autoworkers strike against General Motors that began this week.


The Keynesian Approach?

One of the astute readers of this blog, Benl8, recently commented on my latest post of my recent radio show commentary on ‘Central Banks, Negative Interest Rates,and Helicopter Money’. Ben originally commented what is Keynesian economics to the UK Marxist economist M. Roberts’blog, and then re-posted his comment below to my blog, asking me “I wonder what Jack has to say about this Keynesian approach”. So I thought it useful for me to reply to Ben’s welcomed inquiry and give readers of this blog a sense of where my economic views stand in relation to Marx, Keynes, and post-Keynesian economic schools of thought. Are my views Keynesian? Marxist? Minskyan? Whatever. Here’s Ben’s post and re-post and my own in depth reply:


“I left the following comment at M. Robert’s (A British Marxist economist–my paren) recent post on the same topic. I wonder what Jack has to say about this Keynesian approach. ——-
“Pushing on a string”, is the often chosen description of this policy. Futile is the end result. I’m trying to read about the Reconstruction Finance Corporation which operated from 1932 to 1952. After WWII it was phased out. In the 30s it saved mostly solvent banks with emergency loans, and it bought railroad company debt. Mostly in the 1930s the WPA was the conduit of money, it transferred money directly to workers and families, it was direct job creation, the rate of unemployment dropped from 25% to 9.6%, 1933 to 1937. Keynes also had a solution for perpetual surplus nations, the creation of an International Monetary Clearing Union. This would prevent the race-to-the-bottom in wages that we see with China-US trade. And in the case of Germany, or any surplus-mercantilistic nation, it would require the surplus funds to be invested in the deficit countries. From Paul Davidson’s book The Keynes Solution, page 138: It would encourage creditor nations to “spend these excess credits in three ways: 1.) on the products of any other IMCU member (import more); 2.) on new direct foreign investment in projects in other IMCU member nations (projects, not financial assets); 3.) provide foreign aid similar to the Marshall Plan. And a fourth, maybe, raise wage income in the surplus nation such as increased Earned Income Tax Credits. It’s all about aggregate demand and a balance of income distribution, within each nation and between nations. Direct job creation is a good part of the Green New Deal, some of it targeted to specific low-income communities and geographies. But most of it spent on upgrades and transitions to renewable energy. I’m not sure what Marxists are calling for, but this is state-managed capitalism, and it may lead to the more socialized condition of a world economy. My blog: http://benL88.blogspot.com

Jack Rasmus Reply to Ben

Classical economics was big on supply side approaches to economic growth. Add more capital, more labor, more land and in the long run that produced more products–i.e. supply. They were not very big on consumer demand that might stimulate that production in the shorter run (except for Malthus who had the crazy idea to stimulate demand by diverting more income to landowners. Malthus was a big landowner of course).

Marx’s economics is in the classical economics tradition. Marx uses the same classical conceptual framework, which he redefines in some ways but still remains well within. Example: the classical labor theory of value by Smith, Ricardo and others gets a work over and becomes the basis for explaining Capitalist growth slowdown by Marx–but like his classical economics predecessors, in the long run (i.e. Marx’s breakdown theory). But Marx, like the classicalists before him, Smith, Ricardo, Malthus, et. al., never had an explanation for the business cycle. That’s short run. Even depressions. Nevertheless contemporary Marxist economists continue to try to apply his long run, supply side views on capital accumulation and labor exploitation to explain short run business cycles. Marx never intended that, however. The classical economics conceptual framework, built to explain long run growth or the lack thereof, does not work to explain shorter run business contractions, including depressions. Nor does Marx, or contemporary marxists, give much attention to financial cycles and how they periodically impact real cycles in the short run creating recessions, great recessions, and even depressions. Capitalist financial markets were undeveloped in mid-19th century Britain (the basis for Marx’s data and empirical analysis). Smith, Ricardo and other classicalists understood banking and finance even less. Marx not much better. (One exception might be the banker, Thornton, whose works are often not read). ANd Marx did not give sufficient attention to effective demand, although it plays more a role than in SMith-Ricardo-JB Say. (Yes it was part of his circulation of capital system of analysis but demand was the consequence of production, which was primary. What he called ‘realization crises’ recognized demand as a factor, but production was the driving force of exploitation and therefore of the movement and circuit of capital from inputs to goods to money back to inputs again) . Marx was the most advanced thinker among classical economists, working with their conceptual framework and even advancing it as far as it could go. But capitalism has evolved tremendously since 1850s Britain. It has become more financialized. It has become more globalized. It has radically transformed labor, product and money markets. The nature of money has itself changed. Unfortunately, contemporary Marxists (not all, but especially Anglo-American) have not kept up with these changes (which is very un-Marxist by the way). They instead continue to try to ‘fit’ modern capitalist dynamics into 1850 classical economic theory. Or, in other words, ‘fit’ a square reality into a round hole of past theory.

Keynes broke from the classical and neoclassical economic traditions and tried to create a new analytical framework. He succeeded only partly. And his theory was furthermore distorted by the counter-revolution in economics that followed after world war II that attacked his ideas. What followed attempted to cherry pick what it found useful in Keynes while largely restoring pre-Keynes economic nonsense called neoclassical economics and create a hybrid, a ‘bastardized’ form of Keynes. What purports to be Keynes today is mostly not Keynes but this hybrid ideological synthesis that is sometimes called ‘Keynesianism’ or Keynesian economics.

The real Keynes attempted to develop understanding of short term contractions called business cycles, how and why they occurred and how to recover from them. He debunked neoclassical economics before him. The key he argued was household demand. That was driven by employment. And employment could only be driven by government spending in a deep contraction of a business cycle. He argued against cutting interest rates and cutting business taxes to boost investment first. It wouldn’t work, he argued. What drove investment was not cost of investment (whether taxes, cost of money, etc.). Business cost reduction in a contraction of the cycle would not generate investment nor in turn a return to production and therefore jobs and income to stimulate consumption. Raising consumption directly is what would restore investment (not tax cuts, low rates, wage cuts or even price increases). Getting disposable income in the hands of consumers was the crux to recovery. That could be done in a variety of ways. Get the government to directly hire the unemployed when businesses wouldn’t. Provide unemployment insurance payments. Set a minimum wage. Start public works projects that would create construction jobs. Let unions become legal and expand. That too would raise wages of those with jobs. Provide social security for retirees. Take over mortgages and refinance them for 30 years, instead of the then typical 10 at the time, in order to lower mortgage payments and in turn give households more money to spend (the Home Owners Loan Corporation which functioned much like the Reconstruction Finance Corporation). The New Deal of FDR looked very much in practice what Keynes was advocating in theory. The idea was to raise disposable household income, that would drive consumption, that would in turn provide an incentive for business to invest again, and thereby hire more workers, raise income, etc, and commence a virtuous ‘upward cycle’. It was ‘bottom up’ recovery. Households and workers got recovered first, then ‘trickled up’ via consumption to business revenue, profits, and eventually into more investment.

But capitalists, and especially bankers, don’t like ‘trickle up’ and they own the politicians who vote on programs. They also determine the composition and policies of the central banks. So we get instead now bail out the bankers and continual subsidization of them even long after they’ve been bailed. We get bail out both bank and nonbank businesses via constant, chronic trillion dollar tax cuts and direct subsidy fiscal policies. The ideological argument is then that they will ‘trickle down’ some of their great profits to in turn boost real investment to create jobs and income for workers and households which then boosts consumption. That’s the logic offered as truth and reality but it just doesn’t work in that direction. In today’s 21st century capitalism the ‘trickle down’ has become a mere ‘drip drip’. Most of the tax cuts, and monetary policy of near zero interest rates and free QE money, doesn’t get into real investment in the US any more. It flows instead offshore in today’s globalized capitalism where US multinational corporations increasing invest and produce (they call it ‘supply chains’); or it gets diverted into financial markets that cause stock, bond, and derivative bubbles (that also don’t create any US jobs); it goes into mergers & acquisitions financing that only makes shareholders richer; or it is left to sit on corporate balance sheets waiting for the next lucrative financial or offshore investment opportunity to come. Keynes began to see this in 1935. Check out his Ch. 12 of his General Theory book. Marx had no idea of this in his first volume of Capital published in 1867 (based on 1850s-60s data in Britain). But Marx began to suspect the outline of this development in his unpublished notes in vol 3 of Capital. Gathered together by Engels, from the notes it is unclear who the author is sometime, Marx or Engels, the latter of whom was far less an economist than Marx).

So both Marx and Keynes were on to something abut the key role of employment, household income, demand and consumption as key to understanding business cycles. Marx only vaguely so; Keynes even more so. But both were still before their time.Their views don’t adequately explain 21st century capitalism business cycles.

The economist Hyman Minsky attempted to take Keynes into the world of late 20th century capitalism that was beginning to transform from what Keynes in 1930s saw. Minsky wrote from the 1970s to the early 1990s. So he had a clearer view of what was going on, but still could see only the early outlines of what was coming in 21st century capitalism.

Readers should go back and read Marx’s vol. 3, Keynes General Theory, and Minsky’s 1990 articles. (For my take on all this, see my extensive Part 3 of my 2016 book, ‘Systemic Fragility in the Global Economy’, that reviews classical, Marx, Keynes and Minsky views, and then summarizes my own early views on how 21st century capitalism evolves as financial cycles interact with real cycles–sometimes producing ‘normal’ recessions, sometimes ‘epic’ recessions (that some call ‘great recessions), and occasionally bona fide economic depressions.

Davidson’s book referred to by Benl8 is in the tradition of trying to restore Keynes’ actual views, not just the errors and ideology of the hybrid Keynesianism that is a synthesis of pre-Keynes with Keynes in the worst combination. That hybrid Keynesian view mis-taught generations of young economics students from the 1950s to the 1970s, until it was overthrown by a full retreat back to neoclassical economics led by Friedman’s monetarism, the Chicago school, and dozens of nonsense offshoot theories after 1980. Davidson is in the school of what’s called ‘Post Keynesians’, who try to go back to the original views of Keynes. Minsky would be a ‘Financial Keynesian’ of which they are more today (Wray, Keen, Tymoigne, etc.). Contemporary Marxists, especially the Anglo-Americans (the Europeans and emerging market Marxists are at least trying to revise Marx to the realities of 21st century capitalism), are still mostly trying to stick square pegs in round holes. Contemporary marxists aren’t really marxist economists. They are Marxist Philologists. There’s a few notable exceptions, like Harvey who are more open minded.

Keynes of course, and Minsky as well, do not have all the answers. Capitalism has evolved even beyond them. But they do have something of great value to add to our understanding of the role of income, demand, consumption, the destabilizing effects of financial speculation and bubbles, etc., as well as current day capitalism in general and should both be read. But read only in the original. My recommendation is don’t waste time with third party summaries that mostly distort intentionally, or who haven’t really understood or even perhaps read Keynes or Minsky. (ditto for Marx who should not only be read in the original; but I would add also read backwards; that is, start with vol. 3. Or first read Marx’s pamphlet, ‘Value, Price and Profit’ and then read vol. 3). But you’ll only really understand Marx if you immerse yourself first in the main texts of classical economics: Hume, Carnot, Smith, Ricardo, Thornton, etc. (You can skip Malthus.)

For my views in relation to all three–Marx, Keynes,Minsky–there’s my 2010 book,’Epic Recession'(2010), the chapter on ‘What’s Financial Imperialism’ in my book ‘Looting Greece: A New Financial Imperialism Emerges’ (2016), the last chapter in ‘Systemic Fragility in the Global Economy'(2016), and the final chapter in ‘Central Bankers at the End of Their Ropes'(2017).

Hope that addresses some of the excellent points made by Bl8, who always provides thoughtful questions and comments.

Listen to my interview with WBAI-NY on the issues in the GM auto workers strike that began yesterday, as 46,000 walked off their jobs to improve job security, plant shutdowns protest, end to two tier wage structures, stop shifting of rising health care costs to them, and hundreds of other unresolved issues. What’s behind the legal attack on the UAW national leadership.




Listen to timeline starting at about 4:00minutes to 11:00minutes.

Listen to my Alternative Vision radio show today, September 13, discussion of the European Central Bank’s decision to restart QE and lower interest rates further into negative territory. What are the consequences of negative rates? Why will the $17 trillion global negative rates mean for the pending global recession? Why is Trump demanding the US central bank drive rates into negative range as well? What are central banks worldwide cooking up as responses to the next recession, now that they’re ‘at the end of their ropes’? For this discussion, and first preview of the main themes of my forthcoming October 2019 book,’

    The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’





Today’s show focuses on the recent decision by the European Central Bank to re-introduce QE and drive Europe’s more than $7 trillion in interest rates further into negative territory. Another $22b per month in QE and rate reduction to -0.5% when, over the past 5 yrs QE and negative rates have not stimulated the European economy. Reasons why QE and neg rates have little effect. How $17 trillion in negative rates worldwide is a growing problem and won’t stimulate the Euro economy. Lower rates as exchange rate currency/ trade move. Why Trump is now calling for US negative rates. Why central banks (including Fed) now secretly discussing new tools and tactics for the next recession, including ‘bail ins’ and calls are growing by high level capitalists for the Fed and central banks to expand their authority into fiscal policy areas (as predicted in my 2017 book, ‘Central Bankers at the End of Their Ropes’). Consequences of such for US Constitution and fiction of ‘central bank independence’. Rasmus discusses US deficit now officially projected to exceed $1 trillion a yr. The Democrat Party latest debate and opposition to Medicare for All. And what’s behind the recent ‘softening’ of US & China trade war (and why a deal may now be closer with ‘decoupling’ of technology issue). Rasmus introduces the show with brief outline of his forthcoming book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, October 2019, and shares its main themes. (Review of chapters coming in following weeks of this show).

Watch my video interview with ‘Other Voices’ TV show in Palo Alto, CA, on September 11. The topics: the latest developments in the US-China trade war and why next generation technology is the key issue behind the trade negotiations. An eventual settlement will require both sides putting aside the tech issue for later negotiations and settling on the many concessions already on the negotiating table. (Trump now talks of a ‘two track’ negotiation, suggesting a deal on what’s agreed to date and address tech and other issues later). Questions also address the firing of Bolton and role of Neocons in US-China trade negotiations to date. What’s the real picture on US wages and jobs. And the likelihood of a US recession in the next year.


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