In mid-August 2020 I was interviewed in depth with host, James Kunstler, on various topics related to the current Great Recession–i.e. what constitutes a bona fide fiscal stimulus, how the current contraction compares to 2008-09, 1929-30, and 1907-13 similar great recessions, how the March Cares Act hasn’t been spent by big business, nor has any real fiscal stimulus passed as yet. The three ‘tail risks’ of inadequate fiscal stimulus, political instability in the US around a contested election, and forces developing toward a potential major financial instability in 2021 as defaults and bankruptcies rise is discussed. Why delinquency rates in housing are rising as evictions also escalate.
To Listen to the hour long interview GO TO:
https://kunstler.com/podcast/kunstlercast-333-confab-with-political-economist-dr-jack-rasmus/
Listen to my August 21 Alternative Visions radio show dedicated to reviewing recent articles by mainstream economists who are now increasingly predicting a great depression–including World Bank and Mellon Bank chief economists, Carmen and Vincent Reinhart, who argue we’re in it already.
https://alternativevisions.podbean.com/e/alternative-visions-more-economists-predicting-great-depression/
Dr. Rasmus reviews the growing number of mainstream economists now beginning to predict the current economic crisis, either is now or soon may become, another Great Depression. World Bank and Mellon Bank chief economists, Carmen and Vincent Reinhart’s forthcoming essay in the prestigious Foreign Affairs Journal is reviewed. Rasmus notes how their analysis is similar to points he’s been making since March 2020. Other views similar by liberal dean of economics, Paul Krugman, who calls today’s crisis ‘The Greater Recession’ and others are noted. Few mainstream economists now call it a V-shape recovery, unlike this past spring. Rasmus then reviews actual GDP contractions world wide in 2020 and why they suggest a ‘great recession’ that is weakening at best in the 3rd quarter. Why the current economy will weaken: more Covid 19 problems, basic restructuring of the economy, coming political instability, and financial crisis potentially in 2021. (check out my articles at jackrasmus.com blog for updates).
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TO LISTEN GO TO
https://alternativevisions.podbean.com/e/alternative-visions-more-economists-predicting-great-depression/
-
Show Announcement
Dr. Rasmus reviews the growing number of mainstream economists now beginning to predict the current economic crisis, either is now or soon may become, another Great Depression. World Bank and Mellon Bank chief economists, Carmen and Vincent Reinhart’s forthcoming essay in the prestigious Foreign Affairs Journal is reviewed. Rasmus notes how their analysis is similar to points he’s been making since March 2020. Other views similar by liberal dean of economics, Paul Krugman, who calls today’s crisis ‘The Greater Recession’ and others are noted. Few mainstream economists now call it a V-shape recovery, unlike this past spring. Rasmus then reviews actual GDP contractions world wide in 2020 and why they suggest a ‘great recession’ that is weakening at best in the 3rd quarter. Why the current economy will weaken: more Covid 19 problems, basic restructuring of the economy, coming political instability, and financial crisis potentially in 2021. (check out my articles at jackrasmus.com blog for updates).
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Listen to my hour interview today, August 21, with J. Michaels on Parallax Views podcast on the current state of America’s Triple Crisis. How Covid 19, the recession, and coming US Constitutional crisis and conflict are inter-related and mutually exacerbating. Why all 3 are about to get worse. Why together they may precipitate a financial crisis in 2021.
https://parallaxviews.podbean.com/e/jrasmus/
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To Listen GO TO
https://parallaxviews.podbean.com/e/jrasmus/
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Today’s show addresses the permanent collapse and breakdown of negotiations on an economic stimulus and a discussion of the elements of Trump’s Plan B for the November elections–the outline of which is becoming clearer by the day. Plan B: how Trump, should he lose the November election, may be planning to exploit growing political, economic and health chaos to remain in office in 2021.
To Listen to my hour long presentation
GO TO:
https://alternativevisions.podbean.com/e/alternative-visions-trump-s-election-plan-b/
As Congress goes home it now appears negotiations on a stimulus plan have collapsed, not just broken off. There may be no stimulus package before the November 3 elections. Severing negotiations means Trump’s plan not to negotiate with Democrats and Congress is no longer tactical but strategic. What’s the bigger strategy behind the growing triple crisis in America: Health, Economic and Political? Dr. Rasmus speculates on the elements of Trump’s strategy for November now taking form. How it assumes a continuation of the Covid, Economic, and Constitutional confrontation with Congress. What’s the possible role of a foreign policy crisis in October in a ‘Plan B’? With a deepening Constitutional challenge with the US House of Representatives. What are some scenarios possible after November 3? (Check out Dr. Rasmus’s blog, jackrasmus.com, and his twitter posts for day to day developments, at @drjackrasmus
To Listen to my hour long presentation
GO TO:
https://alternativevisions.podbean.com/e/alternative-visions-trump-s-election-plan-b/
-
SHOW ANNOUNCEMENT
As Congress goes home it now appears negotiations on a stimulus plan have collapsed, not just broken off. There may be no stimulus package before the November 3 elections. Severing negotiations means Trump’s plan not to negotiate with Democrats and Congress is no longer tactical but strategic. What’s the bigger strategy behind the growing triple crisis in America: Health, Economic and Political? Dr. Rasmus speculates on the elements of Trump’s strategy for November now taking form. How it assumes a continuation of the Covid, Economic, and Constitutional confrontation with Congress. What’s the possible role of a foreign policy crisis in October in a ‘Plan B’? With a deepening Constitutional challenge with the US House of Representatives. What are some scenarios possible after November 3? (Check out Dr. Rasmus’s blog, jackrasmus.com, and his twitter posts for day to day developments, at @drjackrasmus
Posted in Uncategorized | 1 Comment »
By Dr, Jack Rasmus
Copyright 2020
(Author’s Note: the following is an addendum to this writer’s recently published article, “Trumps Scuttles Stimulus Negotiations-What Next?”)
Less than 24 hours after Trump broke off negotiations on the economic stimulus package with Congressional Democrat leaders, Pelosi and Shumer, last Friday August 7, Trump issued a series of Executive Orders (EOs) that he had been signaling and threatening all last week well before the break up.
Almost certainly the legal crafting of the EOs were written long before negotiations were dramatically ended by Trump’s hatchet man leading his negotiating team, staffer Mark Meadows. Trump clearly planned the break up and his EOs some time ago.
Trump, Meadows, Mnuchin and McConnell cleverly set up and sucked in Pelosi and Shumer into negotiations last week, never planning to conclude a deal by Friday, in the process getting them to reveal their priority demands and securing from them major concessions worth $1 trillion—for which the Democrat leaders apparently got nothing in return.
A day later, Trump dropped the hammer and issued his EOs, which are designed more as PR for his election campaign. They certainly won’t provide anything remotely necessary as fiscal stimulus to confront the US economy’s emerging fading rebound in recent weeks.
Upon close inspection the EOs are therefore mostly smoke and mirrors, designed to produce useful electoral soundbites for his campaign between now and November. The EOs are more PR for public relations purposes, while also serving as FUs (F*** You) to the Democrats.
EO #1: Payroll Tax Cut
The EO that has gotten the most media attention thus far is his proposal to introduce a payroll tax cut, which neither the Republicans or Democrats in Congress were calling for. Why were they not? Because they had both already agreed to an alternative measure far more lucrative for business: an expansion and extension of the ‘Retention Tax Credit’ passed in March as part of the CARES ACT stimulus. The retention tax credit has provided a direct tax cut to business worth $55 billion since March. Businesses get the tax credit by simply saying they didn’t lay off workers they might have. But any business can make that claim, even if they had no plans to lay off, and thus get the credit. In the current negotiations that were in progress until last Friday, both sides—Republicans and Democrats—had agreed to expand and extend the ‘Retention Tax Credit’ costing another $194 billion in addition to the $55 billion to date.
Another reason why even the Republicans in Congress weren’t all that interested in Trump’s Payroll Tax Cut was that Business had already been given a payroll tax cut in the CARES ACT. Payroll taxes are paid for by both employers and workers, each contributing half the total 15.3% to Social Security and Medicare. (6.2% of the payroll tax goes to social security plus another 1.45% for Medicare). Employers have already therefore had their share of the payroll tax deferred (but not yet permanently cut). Deferral means employers have to start paying it back by the end of 2021. The media hasn’t provided much attention to that. But the employer tax ‘cut’ is really a tax ‘deferral’ that has to be restored at a later date to the social security and Medicare trust funds.
Trump wants not only a deferral of the 7.65% workers’ share immediately, but also to make it permanent later. That means the trust funds will never see the money restored. And if that’s his plan for the workers’ 7.65% share, it will presumably mean the same for the employers’ 7.65% as well. That translates into an end of the social security and Medicare programs! Ending the programs means, in turn that 50 million American households would be immediately thrust into poverty. Consumption would collapse. And economic depression would almost immediately result. But no matter to Trump, so long as he can spin it for re-election purposes in the interim.
Trump administration mouthpieces have been trying desperately to ‘walk back’, as they say, Trump’s disastrous declaration to make the payroll tax cuts permanent and thus destroy social security and Medicare. Mouthpiece #1, Larry Kudlow, says he didn’t mean permanent in fact.
Trump is caught between a rock and a hard place, as they say. By deferring the payroll tax the likely response by employers, as others have pointed out, is that the employers, who are responsible for collecting the payroll tax from workers, may do so and just sit on the collected payroll taxes from their employees.
Employers by law are responsible to collect and send the taxes to the government. If they don’t collect from their workers, thus allowing them to realize a real wage increase in their paychecks equal to 7.65%, then the same employers will be liable to pay out of their own profits what they didn’t collect once the deferral period ends. Employers will have to make up the payroll tax loss in 2021—at the same time they have to pay back the deferral on their own 7.65% share by the end of 2021!
Another related problem is that should workers have their 7.65% deferred and realize a wage increase in 2020 from it, they’ll have to declare that as income and pay taxes on it come April 2021. So it won’t be a 7.65% net income gain for them either.
Apparently Trump’s gambit on the payroll tax has had even some Republican Senators choking on the stupidity of the measure. Republican Senator from Nebraska, Ben Sasse, quickly called it “unconstitutional slop”!
EO #2: $400 Supplemental Unemployment Benefits
The supplement Pandemic Unemployment Compensation program, PUC, introduced last March in the CARES ACT provided for an extra federal $600/week benefit in addition to the States’ Unemployment Benefit programs. Those state programs provide up to $450 a week (California) to as little as $235 a week (Mississippi). The $600 was designed to help unemployed stay in their rental apartments and homes. $235 a week, or about $10,000 or so a year, is grossly inadequate to keep people in their homes during the pandemic. So the $600 was added, and not just to cover household living costs but also to stimulate consumption and the economic recovery. Studies show households earning less than $25,000 who received the $600 spent it all. Other university studies show the $600 has not discouraged workers from returning to their jobs.
Trump’s EO proposes to cut the $600 to $400 a week. But not even $400. The federal government will pay $300 and the states will have to kick in the other $100. If they do not, the government $300 may not even be available, according to some sources. The $600 since March has benefited between 14m and 28m unemployed. It generated $85 billion/month in consumer spending and thus GDP to the US economy. Reducing it to $300 a week—as Trump’s EO proposes—cuts that in half, which means at least $40 billion a month will be taken out of the economy and US GDP. Some stimulus that!
And where will the finances to provide the $300/week benefit come from? It is unclear, although Trump administration mouthpieces have raised the possibility the money will be diverted from the Disaster Relief Fund’s $44 billion—i.e. just as the hurricane season arrives! But $44B will only fund the $300/week for about five weeks at most. Not to mention that transferring funds from a program authorized by Congress is also another unconstitutional action—just as is Trump’s payroll tax cut proposal. It too is just another indication of Trump’s intention to run roughshod over any constitutional requirement that gives authority to Congress, and especially the US House of Representatives.
EO#3: Moratorium on Evictions
There are 108 million Americans living in approximately 48 million rental units in the US. The CARES ACT of last March provided for evictions moratorium in only about one third that total, specifically in apartments subject to federal housing finance programs. So evictions have been continuing ever since the pandemic and great recession began. But they have begun accelerating in July as even the limited moratorium expired on July 25. Estimates are that 12.5 million are potential evictions in the federal covered programs–11 million of which in 2020. Other estimates of potential evictions rise to as much as 30 million plus.
Trump’s eviction moratorium Executive Order does not prohibit evictions at all. It just says states should “consider” suspending or limiting evictions. This particular EO is just typical Trump smoke and mirrors, allowing him to say something in his tweets and public appearances that he’s stopped the evictions. In this case, the EO is just normal Trump BS.
EO#4: Student Loan Deferral
Whereas the March CARES ACT provided for the suspension of student loan payments and zero interest accrual through September 30, 2020. Trump’s EO merely extends it up to the end of December 2020. Or possibly earlier, since the EO states: “It is therefore appropriate to extend this policy until such time that the economy has stabilized, schools have re-opened, and the crisis brought on by the COVID-19 pandemic has subsided.” What’s ‘stabilized’? How many schools must ‘reopen’ and what constitutes ‘pandemic has subsided’? In other words, there’s no guarantee even the suspension is extended through 2020.
The current crisis provides no better opportunity for the US government to simply expunge federal student loan balances and obligations. The program is a travesty. It charges students, now in debt to the tune of $1.6 trillion, interest rates as high as 6.7%. That compares to the ability of businesses to obtain 10 year equivalent loans at interest rates as low as 2% today. Why is the federal government charging millions of students such usurious interest rates? Because it wants to push them off the Dept. of Education loan system into the arms of the private banks to re-consolidate their government education loans. Banks charge now about 4% to consolidate, less than the government’s 6.7% but far more than the 2% they charge their business customers for equivalent loans. Abolishing the $1.6 trillion debt load on students will have no effect whatsoever on US government finances and US economic output. In fact, it would likely result in a major stimulus to consumption and therefore economic growth. But Trump’s EO does nothing except allow him to say he improved relief on student debt by a few weeks before the November elections.
Executive Orders & Deepening US Constitutional Crisis
While running for president before 2016 Trump continually attacked Obama for trying to legislate immigration reform by Executive Order. Now he is doing the same, expanded by magnitudes. Trump has revealed time and again plans to govern by bypassing Congress. He has cornered the Federal Judiciary. Not just the Supreme Court majority but hundreds of his ideological appointees to the Federal Judiciary at all levels are now in his pocket. He clearly believes he can abrogate Congressional legislative authority and govern by decree: executive orders as well as national emergency declarations and similar legal maneuvers no doubt already being planned by Bill Barr and Steven Miller. The current flurry of EOs should be viewed as just the latest tactics in his broader strategy. They are largely public relations measures introduced primarily with his eye on the November elections.
They are also ‘FUs’ directed at the Democrats, declaring his intent to step on them at every opportunity in the run up to the November elections. It’s as if he’s saying and taunting them: “See, I outmaneuvered you guys again. I set you up allowing my hatchet men, Meadows and McConnell, to extract concessions from you in negotiations. I let you think you could get a deal. Now I’ll announce those measures and you can agree to them or not. I’ll spin it and take the political credit. Now you can come back to the bargaining table and give me some more concessions that I’ll take credit for as well. I’m going to string you along like this until November. I’ll look like I’m doing something and you’ll look like you can’t get anything done”.
A Trump De Facto Coup Scenario
Trump will never accede to the results of the upcoming November elections, should he lose. His strategy becomes increasingly evident with every passing week and action. The EOs are just the latest event in that strategy.
The mostly likely scenario for November is his plan to declare on November 4 that the voting has been tampered with as a result of mail ballots and the US post office refusing to process and mail millions of ballots. He’ll declare the November results null and void, and declare the US Supreme Court should decide in his favor for a second term—just as it did (unconstitutionally) in 2000 when the Court stopped the voting count in Florida. This time he’ll challenge the voting count in every state he’ll lose, but not in those he’ll win.That’s why he’s recently said mail in ballots are OK in Florida but a problem elsewhere.
It is not beyond the possible he’ll also call for his radical right, gun-toting friends to come to Washington to surround and protect the White House while the crisis intensifies in December-January. His DHS troops and ICE cops are also available to provide physical protection. Democrats in Congress will rant and rail about it all, but have no executive force to stop him or drag him out of the White House in January when he refuses to leave. Nor will the Washington DC police, or FBI, or US military units want to confront a White House surrounded by his armed supporters. As time drags on, his position will become stronger.
Make no mistake. This is not an impossible scenario. Democrats and moderates think he cannot thus flout the US Constitution and law. Yes he can. And he likely will.
Dr. Jack Rasmus August 9, 2020
Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com. His twitter handle is @drjackrasmus.
Copyright 2020
(Author’s Note: the following is an addendum to this writer’s recently published article, “Trumps Scuttles Stimulus Negotiations-What Next?”)
Less than 24 hours after Trump broke off negotiations on the economic stimulus package with Congressional Democrat leaders, Pelosi and Shumer, last Friday August 7, Trump issued a series of Executive Orders (EOs) that he had been signaling and threatening all last week well before the break up.
Almost certainly the legal crafting of the EOs were written long before negotiations were dramatically ended by Trump’s hatchet man leading his negotiating team, staffer Mark Meadows. Trump clearly planned the break up and his EOs some time ago.
Trump, Meadows, Mnuchin and McConnell cleverly set up and sucked in Pelosi and Shumer into negotiations last week, never planning to conclude a deal by Friday, in the process getting them to reveal their priority demands and securing from them major concessions worth $1 trillion—for which the Democrat leaders apparently got nothing in return.
A day later, Trump dropped the hammer and issued his EOs, which are designed more as PR for his election campaign. They certainly won’t provide anything remotely necessary as fiscal stimulus to confront the US economy’s emerging fading rebound in recent weeks.
Upon close inspection the EOs are therefore mostly smoke and mirrors, designed to produce useful electoral soundbites for his campaign between now and November. The EOs are more PR for public relations purposes, while also serving as FUs (F*** You) to the Democrats.
EO #1: Payroll Tax Cut
The EO that has gotten the most media attention thus far is his proposal to introduce a payroll tax cut, which neither the Republicans or Democrats in Congress were calling for. Why were they not? Because they had both already agreed to an alternative measure far more lucrative for business: an expansion and extension of the ‘Retention Tax Credit’ passed in March as part of the CARES ACT stimulus. The retention tax credit has provided a direct tax cut to business worth $55 billion since March. Businesses get the tax credit by simply saying they didn’t lay off workers they might have. But any business can make that claim, even if they had no plans to lay off, and thus get the credit. In the current negotiations that were in progress until last Friday, both sides—Republicans and Democrats—had agreed to expand and extend the ‘Retention Tax Credit’ costing another $194 billion in addition to the $55 billion to date.
Another reason why even the Republicans in Congress weren’t all that interested in Trump’s Payroll Tax Cut was that Business had already been given a payroll tax cut in the CARES ACT. Payroll taxes are paid for by both employers and workers, each contributing half the total 15.3% to Social Security and Medicare. (6.2% of the payroll tax goes to social security plus another 1.45% for Medicare). Employers have already therefore had their share of the payroll tax deferred (but not yet permanently cut). Deferral means employers have to start paying it back by the end of 2021. The media hasn’t provided much attention to that. But the employer tax ‘cut’ is really a tax ‘deferral’ that has to be restored at a later date to the social security and Medicare trust funds.
Trump wants not only a deferral of the 7.65% workers’ share immediately, but also to make it permanent later. That means the trust funds will never see the money restored. And if that’s his plan for the workers’ 7.65% share, it will presumably mean the same for the employers’ 7.65% as well. That translates into an end of the social security and Medicare programs! Ending the programs means, in turn that 50 million American households would be immediately thrust into poverty. Consumption would collapse. And economic depression would almost immediately result. But no matter to Trump, so long as he can spin it for re-election purposes in the interim.
Trump administration mouthpieces have been trying desperately to ‘walk back’, as they say, Trump’s disastrous declaration to make the payroll tax cuts permanent and thus destroy social security and Medicare. Mouthpiece #1, Larry Kudlow, says he didn’t mean permanent in fact.
Trump is caught between a rock and a hard place, as they say. By deferring the payroll tax the likely response by employers, as others have pointed out, is that the employers, who are responsible for collecting the payroll tax from workers, may do so and just sit on the collected payroll taxes from their employees.
Employers by law are responsible to collect and send the taxes to the government. If they don’t collect from their workers, thus allowing them to realize a real wage increase in their paychecks equal to 7.65%, then the same employers will be liable to pay out of their own profits what they didn’t collect once the deferral period ends. Employers will have to make up the payroll tax loss in 2021—at the same time they have to pay back the deferral on their own 7.65% share by the end of 2021!
Another related problem is that should workers have their 7.65% deferred and realize a wage increase in 2020 from it, they’ll have to declare that as income and pay taxes on it come April 2021. So it won’t be a 7.65% net income gain for them either.
Apparently Trump’s gambit on the payroll tax has had even some Republican Senators choking on the stupidity of the measure. Republican Senator from Nebraska, Ben Sasse, quickly called it “unconstitutional slop”!
EO #2: $400 Supplemental Unemployment Benefits
The supplement Pandemic Unemployment Compensation program, PUC, introduced last March in the CARES ACT provided for an extra federal $600/week benefit in addition to the States’ Unemployment Benefit programs. Those state programs provide up to $450 a week (California) to as little as $235 a week (Mississippi). The $600 was designed to help unemployed stay in their rental apartments and homes. $235 a week, or about $10,000 or so a year, is grossly inadequate to keep people in their homes during the pandemic. So the $600 was added, and not just to cover household living costs but also to stimulate consumption and the economic recovery. Studies show households earning less than $25,000 who received the $600 spent it all. Other university studies show the $600 has not discouraged workers from returning to their jobs.
Trump’s EO proposes to cut the $600 to $400 a week. But not even $400. The federal government will pay $300 and the states will have to kick in the other $100. If they do not, the government $300 may not even be available, according to some sources. The $600 since March has benefited between 14m and 28m unemployed. It generated $85 billion/month in consumer spending and thus GDP to the US economy. Reducing it to $300 a week—as Trump’s EO proposes—cuts that in half, which means at least $40 billion a month will be taken out of the economy and US GDP. Some stimulus that!
And where will the finances to provide the $300/week benefit come from? It is unclear, although Trump administration mouthpieces have raised the possibility the money will be diverted from the Disaster Relief Fund’s $44 billion—i.e. just as the hurricane season arrives! But $44B will only fund the $300/week for about five weeks at most. Not to mention that transferring funds from a program authorized by Congress is also another unconstitutional action—just as is Trump’s payroll tax cut proposal. It too is just another indication of Trump’s intention to run roughshod over any constitutional requirement that gives authority to Congress, and especially the US House of Representatives.
EO#3: Moratorium on Evictions
There are 108 million Americans living in approximately 48 million rental units in the US. The CARES ACT of last March provided for evictions moratorium in only about one third that total, specifically in apartments subject to federal housing finance programs. So evictions have been continuing ever since the pandemic and great recession began. But they have begun accelerating in July as even the limited moratorium expired on July 25. Estimates are that 12.5 million are potential evictions in the federal covered programs–11 million of which in 2020. Other estimates of potential evictions rise to as much as 30 million plus.
Trump’s eviction moratorium Executive Order does not prohibit evictions at all. It just says states should “consider” suspending or limiting evictions. This particular EO is just typical Trump smoke and mirrors, allowing him to say something in his tweets and public appearances that he’s stopped the evictions. In this case, the EO is just normal Trump BS.
EO#4: Student Loan Deferral
Whereas the March CARES ACT provided for the suspension of student loan payments and zero interest accrual through September 30, 2020. Trump’s EO merely extends it up to the end of December 2020. Or possibly earlier, since the EO states: “It is therefore appropriate to extend this policy until such time that the economy has stabilized, schools have re-opened, and the crisis brought on by the COVID-19 pandemic has subsided.” What’s ‘stabilized’? How many schools must ‘reopen’ and what constitutes ‘pandemic has subsided’? In other words, there’s no guarantee even the suspension is extended through 2020.
The current crisis provides no better opportunity for the US government to simply expunge federal student loan balances and obligations. The program is a travesty. It charges students, now in debt to the tune of $1.6 trillion, interest rates as high as 6.7%. That compares to the ability of businesses to obtain 10 year equivalent loans at interest rates as low as 2% today. Why is the federal government charging millions of students such usurious interest rates? Because it wants to push them off the Dept. of Education loan system into the arms of the private banks to re-consolidate their government education loans. Banks charge now about 4% to consolidate, less than the government’s 6.7% but far more than the 2% they charge their business customers for equivalent loans. Abolishing the $1.6 trillion debt load on students will have no effect whatsoever on US government finances and US economic output. In fact, it would likely result in a major stimulus to consumption and therefore economic growth. But Trump’s EO does nothing except allow him to say he improved relief on student debt by a few weeks before the November elections.
Executive Orders & Deepening US Constitutional Crisis
While running for president before 2016 Trump continually attacked Obama for trying to legislate immigration reform by Executive Order. Now he is doing the same, expanded by magnitudes. Trump has revealed time and again plans to govern by bypassing Congress. He has cornered the Federal Judiciary. Not just the Supreme Court majority but hundreds of his ideological appointees to the Federal Judiciary at all levels are now in his pocket. He clearly believes he can abrogate Congressional legislative authority and govern by decree: executive orders as well as national emergency declarations and similar legal maneuvers no doubt already being planned by Bill Barr and Steven Miller. The current flurry of EOs should be viewed as just the latest tactics in his broader strategy. They are largely public relations measures introduced primarily with his eye on the November elections.
They are also ‘FUs’ directed at the Democrats, declaring his intent to step on them at every opportunity in the run up to the November elections. It’s as if he’s saying and taunting them: “See, I outmaneuvered you guys again. I set you up allowing my hatchet men, Meadows and McConnell, to extract concessions from you in negotiations. I let you think you could get a deal. Now I’ll announce those measures and you can agree to them or not. I’ll spin it and take the political credit. Now you can come back to the bargaining table and give me some more concessions that I’ll take credit for as well. I’m going to string you along like this until November. I’ll look like I’m doing something and you’ll look like you can’t get anything done”.
A Trump De Facto Coup Scenario
Trump will never accede to the results of the upcoming November elections, should he lose. His strategy becomes increasingly evident with every passing week and action. The EOs are just the latest event in that strategy.
The mostly likely scenario for November is his plan to declare on November 4 that the voting has been tampered with as a result of mail ballots and the US post office refusing to process and mail millions of ballots. He’ll declare the November results null and void, and declare the US Supreme Court should decide in his favor for a second term—just as it did (unconstitutionally) in 2000 when the Court stopped the voting count in Florida. This time he’ll challenge the voting count in every state he’ll lose, but not in those he’ll win.That’s why he’s recently said mail in ballots are OK in Florida but a problem elsewhere.
It is not beyond the possible he’ll also call for his radical right, gun-toting friends to come to Washington to surround and protect the White House while the crisis intensifies in December-January. His DHS troops and ICE cops are also available to provide physical protection. Democrats in Congress will rant and rail about it all, but have no executive force to stop him or drag him out of the White House in January when he refuses to leave. Nor will the Washington DC police, or FBI, or US military units want to confront a White House surrounded by his armed supporters. As time drags on, his position will become stronger.
Make no mistake. This is not an impossible scenario. Democrats and moderates think he cannot thus flout the US Constitution and law. Yes he can. And he likely will.
Dr. Jack Rasmus August 9, 2020
Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com. His twitter handle is @drjackrasmus.
Posted in Uncategorized | 1 Comment »
By Dr. Jack Rasmus
August 7, 2020
Today, August 7, 2020 negotiations on an economic stimulus package between US House Democrats and the White House broke down and broke off. What’s behind it?
In recent days the Democrats’ leaders, Nancy Pelosi and Chuck Shumer, reportedly reduced the cost of their original ‘Heroes Act’ proposals by $1 trillion. Instead of the original cost of $3T in the Heroes Act passed last June, they were willing to agree to a reduced package of $2 trillion. Never mind the attempt to reach a compromise on some middle ground. The White House, Thru his assigned negotiator, staffer Mark Meadows, Trump rejected the Dems offer.
Meadows reportedly slammed the table (a two-bit amateur negotiating tactic) and walked out of negotiations with Pelosi-Shumer in a huff. Meadows’ walkout appears a well planned set up in the works for some time.
What does this mean? Politically and for the economy, now showing clear signs of the mild rebound of May-June dissipating in recent weeks?
On one level it’s clearly a typical Trump negotiating tactic: Bring a deal to a near close, then make a big show and angrily walk away. Trump’s done that before on numerous occasions. We saw it in the trade negotiations with China in 2018 and again 2019. It didn’t work then with the Chinese trade negotiators, and will likely not work here again—assuming the Dems don’t lose their backbone and fall for the set up, which has been known to happen in the past.
Trump coyly stayed on the sidelines in the early phase of the negotiations between the Dems and McConnell in the Senate and Mnuchin at Treasury.
He let McConnell in the Senate carry the early bargaining water. But McConnell’s extreme ideologue wing, led by Rand Paul and others, revolted. They said they couldn’t support any kind of new stimulus because of its impact on the government’s deficit and debt. However, this same Rand Paul-led crew in just one day last week quickly approved a record $760B Pentagon spending bill. Nor did these same folks have any problem approving tax cuts worth $5 trillion in the past two years under Trump. Nothing said about that impact on the budget and national debt.
And its these same hypocrites in the Senate who have been arguing the $600/wk. unemployment benefits for workers under the March 2020 Cares Act were ‘too generous’. The benefit was keeping workers from returning to work, although at least a half dozen university studies—from Harvard, Yale and Princeton—concluded it’s not so.
McConnell’s withdrawal to the sidelines in negotiations in early July—allowing Trump, Meadows and Mnuchin to take the lead in negotiations on the stimulus—may be part of the Republican strategy as well. UP until recent weeks, McConnell and Mnuchin were respectively playing ‘hard cop’ and ‘soft cop’ with Pelosi-Shumer. McConnell wouldn’t budge, which let the Dems pursue compromise with Mnuchin as lead for the Trump negotiations. Mnuchin and the Dems actually made some headway and some compromises. Mnuchin sucked them in, getting them to reduce their original Heroes Act $3T proposals to $2T. They were being set up.
Then Mark Meadows, Trump’s hatched man, joined in taking over the negotiations and played hard cop to Mnuchin’s soft cop. Now Meadows broke off discussions and stomped out today, August 7. The tactic is transparently designed to get the Dems to reduce their position even further. Propose more than the $1 trillion concessions already made this past week as the cost of getting Meadows to return to the bargaining table. If they do, it makes Trump look tough and in control of the negotiations agenda. And if they don’t, then Trump moves on to legislative by executive action—which also puts him in the appearance of control and the sole person producing the stimulus package.
Trump also wants to put his ‘mark’ on the negotiations, as is always the case. He wants it to look like the parties couldn’t come together, but he was able to hammer out a deal. ‘The Art of the Deal’, right?
And there’s another more insidious objective here. Trump’s been signaling for weeks he’d like to inject his own pet demands and is ready to do so by executive order once again if necessary. He wants to legislate by executive order. He pulled it off before, setting a precedent. That was when he spent money for his wall by shifting it from the Defense Dept., prepared to restore the diverted funds back to the Defense Dept. at a later date. Republican proposals on the table, by the way, provide another $29 billion for the Pentagon—over and above the just awarded Pentagon spending of $760 billion. Now he’ll make a similar move: he’ll divert funds by executive action to pay for his new tax cuts and other measures taking money from some other pot, present or future, to pay for it. Dems in Congress will be left standing saying ‘hey, you can’t do that’, but it’ll already be done.
Breaking off negotiations now gives Trump the opportunity to introduce his proposals by executive order. To do so is clearly unconstitutional but that means nothing to Trump. He’ll soon announce his own stimulus proposals and start executive orders implementation . He’ll use that fait accompli to force the Dems to agree to them if they want to be part of any final stimulus deal. And if they don’t,” so what” he’ll say. “They couldn’t get it passed. I did.”
But as the failure to pass a new fiscal stimulus drags on, 14 million workers will lose their supplemental $600/wk. unemployment benefits. That’s roughly $85 billion a month taken out of US GDP, in reduced household consumption. Failure to pass a stimulus also means that 12.3 million renters will be evicted before November, according to the most conservative survey. Some surveys estimate as many as 28 million will be evicted. And no more money for state and local governments facing a growing fiscal crisis that will soon require them to start mass layoffs in September.
The McConnell-Trump strategy is not to bail out state and local governments. It’s about making the high urban population centers—located largely in ‘blue’ states—to bear the brunt of the continuing economic crisis. If they need more money, let them go to the municipal bond market and borrow more. It’s a blue state problem, they argue. Let them sink with it is the Republican view. Or else cut their too generous public employee benefits and pensions.
To sum up, the strategic objectives behind Trump’s ordering his man, Meadows, to break off negotiations are several: inject Trump to the center of the negotiations in the last phase of bargaining so he can take credit for any subsequent deal. Second, allow Trump to raise his pet proposals—like making the payroll tax cut permanent—to the top of the bargaining agenda with the Dems. Third, let McConnell off the hook and avoid creating a split within his Republican ranks over deficits in order to forge a deal. Fourth, expand Trump’s attack on the legislative and purse strings authority of the US House of Representatives, and thereby push the presidency toward usurping legislative authority still further than it already has.
Trump is not only a tyrant—i.e. someone who sees himself above the law—as witnessed by his recent pardons and his own numerous public statements about himself as president; he is also a classic usurper, attempting to shift legislative authority via executive action from Congress to himself; and he is also moving toward rule by decree—aka a dictator—which is a hallmark of all authoritarian and would-be fascist rulers.
And we should watch out for more ‘rule by decree’ attempts in coming months as he invokes one or more ‘national emergency declarations’ to deal with America’s current triple crises—political as well as economic and health.
With Trump forcing a break-up of the recent fiscal stimulus negotiations, and his to be announced executive orders, the political-constitutional and economic crises in America are becoming increasingly entangled. It almost seems as if Trump’s grand strategy may be to exacerbate the deepening crises as much as possible before November 3, in order to create a pretext for him to declare the election void and challenge the results.
Dr. Jack Rasmus
August 7, 2020
August 7, 2020
Today, August 7, 2020 negotiations on an economic stimulus package between US House Democrats and the White House broke down and broke off. What’s behind it?
In recent days the Democrats’ leaders, Nancy Pelosi and Chuck Shumer, reportedly reduced the cost of their original ‘Heroes Act’ proposals by $1 trillion. Instead of the original cost of $3T in the Heroes Act passed last June, they were willing to agree to a reduced package of $2 trillion. Never mind the attempt to reach a compromise on some middle ground. The White House, Thru his assigned negotiator, staffer Mark Meadows, Trump rejected the Dems offer.
Meadows reportedly slammed the table (a two-bit amateur negotiating tactic) and walked out of negotiations with Pelosi-Shumer in a huff. Meadows’ walkout appears a well planned set up in the works for some time.
What does this mean? Politically and for the economy, now showing clear signs of the mild rebound of May-June dissipating in recent weeks?
On one level it’s clearly a typical Trump negotiating tactic: Bring a deal to a near close, then make a big show and angrily walk away. Trump’s done that before on numerous occasions. We saw it in the trade negotiations with China in 2018 and again 2019. It didn’t work then with the Chinese trade negotiators, and will likely not work here again—assuming the Dems don’t lose their backbone and fall for the set up, which has been known to happen in the past.
Trump coyly stayed on the sidelines in the early phase of the negotiations between the Dems and McConnell in the Senate and Mnuchin at Treasury.
He let McConnell in the Senate carry the early bargaining water. But McConnell’s extreme ideologue wing, led by Rand Paul and others, revolted. They said they couldn’t support any kind of new stimulus because of its impact on the government’s deficit and debt. However, this same Rand Paul-led crew in just one day last week quickly approved a record $760B Pentagon spending bill. Nor did these same folks have any problem approving tax cuts worth $5 trillion in the past two years under Trump. Nothing said about that impact on the budget and national debt.
And its these same hypocrites in the Senate who have been arguing the $600/wk. unemployment benefits for workers under the March 2020 Cares Act were ‘too generous’. The benefit was keeping workers from returning to work, although at least a half dozen university studies—from Harvard, Yale and Princeton—concluded it’s not so.
McConnell’s withdrawal to the sidelines in negotiations in early July—allowing Trump, Meadows and Mnuchin to take the lead in negotiations on the stimulus—may be part of the Republican strategy as well. UP until recent weeks, McConnell and Mnuchin were respectively playing ‘hard cop’ and ‘soft cop’ with Pelosi-Shumer. McConnell wouldn’t budge, which let the Dems pursue compromise with Mnuchin as lead for the Trump negotiations. Mnuchin and the Dems actually made some headway and some compromises. Mnuchin sucked them in, getting them to reduce their original Heroes Act $3T proposals to $2T. They were being set up.
Then Mark Meadows, Trump’s hatched man, joined in taking over the negotiations and played hard cop to Mnuchin’s soft cop. Now Meadows broke off discussions and stomped out today, August 7. The tactic is transparently designed to get the Dems to reduce their position even further. Propose more than the $1 trillion concessions already made this past week as the cost of getting Meadows to return to the bargaining table. If they do, it makes Trump look tough and in control of the negotiations agenda. And if they don’t, then Trump moves on to legislative by executive action—which also puts him in the appearance of control and the sole person producing the stimulus package.
Trump also wants to put his ‘mark’ on the negotiations, as is always the case. He wants it to look like the parties couldn’t come together, but he was able to hammer out a deal. ‘The Art of the Deal’, right?
And there’s another more insidious objective here. Trump’s been signaling for weeks he’d like to inject his own pet demands and is ready to do so by executive order once again if necessary. He wants to legislate by executive order. He pulled it off before, setting a precedent. That was when he spent money for his wall by shifting it from the Defense Dept., prepared to restore the diverted funds back to the Defense Dept. at a later date. Republican proposals on the table, by the way, provide another $29 billion for the Pentagon—over and above the just awarded Pentagon spending of $760 billion. Now he’ll make a similar move: he’ll divert funds by executive action to pay for his new tax cuts and other measures taking money from some other pot, present or future, to pay for it. Dems in Congress will be left standing saying ‘hey, you can’t do that’, but it’ll already be done.
Breaking off negotiations now gives Trump the opportunity to introduce his proposals by executive order. To do so is clearly unconstitutional but that means nothing to Trump. He’ll soon announce his own stimulus proposals and start executive orders implementation . He’ll use that fait accompli to force the Dems to agree to them if they want to be part of any final stimulus deal. And if they don’t,” so what” he’ll say. “They couldn’t get it passed. I did.”
But as the failure to pass a new fiscal stimulus drags on, 14 million workers will lose their supplemental $600/wk. unemployment benefits. That’s roughly $85 billion a month taken out of US GDP, in reduced household consumption. Failure to pass a stimulus also means that 12.3 million renters will be evicted before November, according to the most conservative survey. Some surveys estimate as many as 28 million will be evicted. And no more money for state and local governments facing a growing fiscal crisis that will soon require them to start mass layoffs in September.
The McConnell-Trump strategy is not to bail out state and local governments. It’s about making the high urban population centers—located largely in ‘blue’ states—to bear the brunt of the continuing economic crisis. If they need more money, let them go to the municipal bond market and borrow more. It’s a blue state problem, they argue. Let them sink with it is the Republican view. Or else cut their too generous public employee benefits and pensions.
To sum up, the strategic objectives behind Trump’s ordering his man, Meadows, to break off negotiations are several: inject Trump to the center of the negotiations in the last phase of bargaining so he can take credit for any subsequent deal. Second, allow Trump to raise his pet proposals—like making the payroll tax cut permanent—to the top of the bargaining agenda with the Dems. Third, let McConnell off the hook and avoid creating a split within his Republican ranks over deficits in order to forge a deal. Fourth, expand Trump’s attack on the legislative and purse strings authority of the US House of Representatives, and thereby push the presidency toward usurping legislative authority still further than it already has.
Trump is not only a tyrant—i.e. someone who sees himself above the law—as witnessed by his recent pardons and his own numerous public statements about himself as president; he is also a classic usurper, attempting to shift legislative authority via executive action from Congress to himself; and he is also moving toward rule by decree—aka a dictator—which is a hallmark of all authoritarian and would-be fascist rulers.
And we should watch out for more ‘rule by decree’ attempts in coming months as he invokes one or more ‘national emergency declarations’ to deal with America’s current triple crises—political as well as economic and health.
With Trump forcing a break-up of the recent fiscal stimulus negotiations, and his to be announced executive orders, the political-constitutional and economic crises in America are becoming increasingly entangled. It almost seems as if Trump’s grand strategy may be to exacerbate the deepening crises as much as possible before November 3, in order to create a pretext for him to declare the election void and challenge the results.
Dr. Jack Rasmus
August 7, 2020
Posted in Uncategorized | 1 Comment »
How is it that weekly unemployment benefits filings have topped 2m for 20 consecutive weeks now, but US Labor Dept. monthly job reports show 9.2 million total new jobs created from May thru July? How is it that 31 million are still collecting unemployment benefits but the official US govt unemployment rate has fallen to only 10% (roughly 15m out of a labor force of 150m)?
Listen to my most recent brief 15 min. radio interviews on the condition of jobs, unemployment benefits, and Congressional lack of action.
GO TO:
https://www.spreaker.com/user/radiosputnik/jobless-report-shows-a-million-plus-unem
OR TO:
https://www.spreaker.com/episode/40064612
Listen to my most recent brief 15 min. radio interviews on the condition of jobs, unemployment benefits, and Congressional lack of action.
GO TO:
https://www.spreaker.com/user/radiosputnik/jobless-report-shows-a-million-plus-unem
OR TO:
https://www.spreaker.com/episode/40064612
Posted in Uncategorized | Leave a Comment »
Dr. Jack Rasmus
Copyright 2020
This past week US economy collapsed in the 2nd quarter by 32.9% at annual rate and nearly 10% just for the April-June period. Never before in modern US history—not even in the worse quarters of the 1930s great depression—has the US economy contracted so quickly and so deeply!
All the major private sectors of the US economy—Consumption, Business Investment, Exports & Imports—collapsed in ranges from -30% to -40% in the April-June period. That followed first quarter prior declines in single digits as well. More than $2 trillion in real economic activity was wiped from the economy. Consumption collapsed by more than -1.5 trillion. Business investment by nearly -$600 billion. Ditto net trade and even state & local government spending.
Even more foreboding is that the April-June collapse came as the economy opened up in June virtually everywhere and in many states even before in May. So the 2nd quarter collapse—as deep as unprecedented as it was—reflects a rebound of economic activity during the last six weeks of the quarter.
More worrisome still, even the weak May-June rebound has begun showing signs of stalling out as of mid-July, according to latest economic indicators.
Fading 3rd Quarter US Economy
Here’s some emerging evidence of that stall-out now beginning:
• Jobs Deteriorating Once Again
Weekly initial unemployment claims began to rise after mid-July. The numbers of new jobless claims are now consistently in the 2.2m-2.4m per week range as the economy enters August. Officially more than 32m are now collecting benefits. Millions more are still trying, or running out of them. Add to that the more than 5 million more workers who simply dropped out of the labor force since February. They’re not even calculated in the unemployment rate, according to official US government practices. So there’s easily 40m jobless out there in America—a number that’s remained pretty constant for months now. 40m unemployed is roughly a 25% unemployment rate, same as that during the worst of the 1930s great depression.
On Friday, August 7 the US Labor Dept. will report jobs and unemployment numbers for July. The reported consensus among economists is that it will likely show only 1.6m new jobs created, according to a survey reported by Reuters—a sharp slowdown after June’s numbers showed 4.8m. But 3 million of June’s new jobs represented workers returning to restaurants, hospitality, and retail work as the economy was reopened (prematurely) in May-June. Now, as the Covid virus has surged again in July, many of those 3 million who returned to work in May-June are being re-laid off in July or returning to sheltering as 30 states have again re-initiated partial shutdowns.
In addition to the Covid surge effect on jobs, scores of large companies have, independently of the virus effect, begun announcing mass layoffs by the thousands and tens of thousands. They have determined the economy’s situation is far worse than reported by the media or Trump administration and are planning for a long recession. Their layoffs will be mostly permanent due to long term restructuring.
If the 32m now collecting jobless benefits, plus those waiting to still get them, plus those who gave up and dropped out of work altogether equal 25% unemployment, how is it then that the US government keeps saying unemployment is only 11.1%?
It’s because that 11.1% is a cherry-picked low ball number for public consumption that conveniently represents only full time workers unemployment. If part timers laid off were included, even per the government’s own figures that’s 18%. Those numbers also don’t accurately count those who left the labor force or reflect the number of ‘gig’ jobs that are picked up as part of the 25% unemployed in the unemployment benefits numbers.
Another indicator of the renewed deterioration of the labor markets is the number of job openings reported by the government. That too has begun to trend down once again after mid- July just as the unemployment benefits claims began to rise in tandem.
• US Manufacturing & Construction Stagnant At Best
Manufacturing and construction account for roughly 20% of the US economy and GDP. The spin since the US economic reopening began late May has been all sectors of the economy have been bouncing back—services, manufacturing, construction. Facts show otherwise.
In Manufacturing jobs have continued to decline every month, according to Purchasing Managers Indexes (PMI) More companies continued to lay off workers in manufacturing than hire them during May-June. Manufacturing output continued to contract through June, with a reading of 49.8 (less than 50 indicates contraction). That rose to 51.3 in first half of July, but contracted again at the close of July finishing the month of July essentially stagnant at 50.9, according to the business research firm, HIS Markit.
The condition was roughly the same for construction. Per the US Commerce Dept., construction activity continued to decline by -1.7% in May and another -0.7% in June during the period of the economy’s reopening.
So with services’ industries and occupations re-shutting down in July once again, and with Manufacturing and Construction, stagnating at best—by end of July 2020 the US is teetering on the edge of faltering and ending the brief, weak and tentative economic rebound of late May to early July.
• Household Income & Consumption in Trouble
Consumption spending by households represents 70% of the US economy and GDP. The main determinant of household spending for the more than 100 million US working/middle class households is their wage income or, for working class retiree households, their pensions, social security benefits, & other income. Household income for tens of millions is now in a precarious state and is being reflected in reduced spending already.
According to a US Census Bureau report in July, 22% of households report that they now, as of July, can’t make their rent or mortgage payments. There are roughly 70 million renting households in the US. That’s more than 15 million US households and more than 30 million Americans!
According to Urban Institute research, it will cost $7.3B a month to keep renters and homeowners in their homes. That’s a little more than $50B for the next six months. But Republicans—Mnuchin, McConnell & Trump—all adamantly refuse to provide any of the $7.3B assistance. On the other hand, they quickly approved roughly $20B in the March Cares Act for Defense corps making billions in profits, passed the $760B in new money for the Pentagon in one day last week, and now propose another $30B for their Pentagon-Defense Corp. friends in their HEALsAct stimulus proposal announced in July.
Apart from the $760B new record Pentagon budget just passed in the blink of a political eye, that’s roughly $50B in new money for the Pentagon instead of $50B to keep tens of millions of working class households in their homes for another six months!
Already evictions of renters and foreclosures of homeowners are rising fast. It’s something of a myth that even the Cares Act of last March introduced a moratorium on rent evictions. First of all, that addressed only one third of the available rents—i.e. those backed by US government financing. Two-thirds have always been exempt. Even the one-third was not enforceable, moreover. Many areas of the US have continued with evictions throughout the pandemic period.
And now evictions are accelerating even faster in July, now that the Cares Act measure expired on July 25. No fewer than 12.3 million renters covered by the Cares Act lost their moratorium late July. That evictions acceleration, now underway, has resulted in reduced spending and consumption since mid-July and will no doubt depress spending even more into August and beyond.
In addition to the Housing crisis depressing income and consumer spending, there’s the parallel crisis of more than 15 million newly unemployed having no medical insurance. Studies show clearly those without insurance tend to spend less to save for medical expenses. A Commonwealth Health Care Fund survey in late June found that 21% of workers laid off lost all health insurance coverage from their employer and all sources during layoff since March. That means at least 8 million additional US households without health insurance since March. 8 million more—and rising as new unemployment claims also rise—who will spend less and compress consumption further and therefore US GDP in 3rd quarter.
Yet another major factor portends a slowing of household spending and consumption, further dampening any economic rebound: Congress’s reduction of unemployment benefits.
Debate is now intensifying in Congress on the scope and magnitude of a so-called ‘5th stimulus’ legislative package. At the heart of the debate is whether to continue the $600/week federal supplemental unemployment benefits instituted last March under the Cares Act. The cost of the $600/wk. benefit was estimated in March at $340 billion, for a period of four months. Were the $600 eliminated altogether, it would thus take roughly $85B a month out of the US economy.
Republicans in the Senate have proposed an immediate reduction of the $600 benefit to $200. Hidden in the proposal is a further reduction after two months at $200, by integrating the federal benefit with state unemployment benefits and capping both at $500. So at least 3/4s of the $600 would end, taking nearly $65B a month in spending out of the economy starting in August and for however long the benefit continue.
It is not surprising given the rising unemployment claims, pending evictions, growing ranks of health uninsured, and prospects of ending significant unemployment benefits—not to mention the resurge of the virus and growing partial re-shutdowns across dozens of states—that household consumer confidence shows evidence of fading in July as well. University of Michigan’s survey—considered the gold standard of the confidence research—recently reported that consumers’ expectations for the US economy over the next six months continue to slip further. In March 2020 the overall index fell to only 72.5, a historic low (>100 means positive; <100 means failing confidence). That remained at 73.2 in June despite the economy reopening. The next six months expectations index in June was 72.3 but by mid-July had deeply contracted further to only 65.9. Clearly, consumers are not optimistic where the economy is about to go and, to the extent their expectations affect their spending, the latter is not likely to recover soon.
In short, escalating housing evictions, more loss of health insurance coverage, and reduction of weekly unemployment benefits for tens of millions of Americans and households can only further significantly depress household consumption—70% of the economy—and thus undermine the already weak and fading May-June economic rebound.
Fading US Economic Rebound in Historical Perspective
During the depths of the crash in March-April, Trump, his administration spokespersons, much of the mainstream media, and many economists were predicting the crash would soon produce a just as rapid snap back of the economy beginning in June. That was called the ‘V-Shape’ recovery.
But recoveries are sustained, whereas ‘rebounds’ are not. This writer was publicly predicting last March the V-shape prediction was a fiction. At best, the trajectory of the US economy would prove to be ‘W-Shape’—as have all great recessions of which the current contraction has proven to be among the more severe. (Other ‘great recessions’ have occurred the last century in 1908-13, 1929-30, and 2008-11. None were V-shape. All were to some degree ‘W-shape’. And in one case, the ‘W’ transformed into an extended ‘U’ and the great depression of the 1930s.
W-shape trajectories are typical of great recessions. W-shape means a deep initial contraction of the economy is followed by a weak rebound, which then dissipates and produces a subsequent economic relapse in terms of growth and GDP. The relapse may take the form of a dramatic slowdown in the rebound or in the economic growth rate totally stalling out and economic stagnation occur next quarter. Or, yet a third possibility is that the relapse may prove even more severe and result in a renewed contraction once again—i.e. a double dip recession. In a W-shape typical great recession trajectory, the stagnation or double dip is in turn followed by another brief and weak ‘rebound’. And that rebound followed by yet another relapse. Triple dips are not impossible. That’s what happened to Japan after 2008 and almost to Europe as well after 2014.
This ‘bouncing along the bottom’ trajectory following the deep initial crash may go on for months and years—as was the case in the US after 1908 and again after 2009 as well.
Or, alternatively, the stagnation or further economic contractions may lead to a subsequent financial and banking crash that drives the economy even deeper, ratchet-like, to become a de facto economic depression. That was the case after 1930.
What’s happened to date in the US, from early March through July 2020, shows the US economy has clearly fallen into a great recession again–and this time three times deeper than in 2008-09 and in one third less the time!
It is unprecedented. And it represents totally new territory that mainstream economists have no analog experience from which to speculate as to its medium and longer term trajectory into 2021. Indeed, the mainstream economics community has no clue. They are content, as they typically are won’t to be, with predicting the present instead of the future—although very few now bother to say it’s a V-shape recovery. Only the polyannas in the Trump administration still adhere to that nonsense and that fiction.
The first phase of the 2020 Great Recession has passed. That was the deep and rapid contraction of 10% (32.9% annualized). The second phase began with the weak June rebound that continued into early July. The question now is whether that weak rebound will transform into a relapse in the form of a rapid slowing of the economy once again—i.e. a third phase. Or perhaps just a second phase, with the weak rebound of May-June representing a juncture or transition between phases.
Beyond the coming 3rd quarter the central question is whether the US economy will experience yet another weak, short and shallow economic rebound? If so, the W-shape trajectory of the current Great Recession 2.0 will be further confirmed. Another possibility is the contraction will even out and settle into a longer term stagnation. Yet a third outcome is further shocks to the economy will drive it into yet another sharp and deep contraction.
There are three possible ‘drivers’ that would result in the latter outcome: a failure of Congress and policy makers to introduce a sufficient fiscal stimulus directed at household consumption stimulus; a major political and constitutional crisis occurring surrounding the November 3 national presidential elections; or a chain reaction contagion in financial markets provoked by spreading business defaults and bankruptcies—either in the US or abroad.
The nation should know fairly shortly whether Congress—driven by Republican and conservative-radical ideologues—fails to pass sufficient fiscal stimulus as the economy fades in the 3rd quarter.
The second outcome is becoming increasingly likely by the day. Trump clearly has no intention of leaving office by normal processes. A close electoral college vote will further ensure a political crisis in the US of dimensions never before experienced. The economic consequences will prove severe. Those possible scenarios will be described shortly in another article.
Third, although a major financial instability event is not yet imminent, the longer the W-shape great recession trajectory continues, the more likely such an instability event becomes. Moreover, when it does, it will appear swiftly, unexpectedly, and no less severely in terms of its impact on the real economy of households, workers, and even businesses in general.
Dr. Jack Rasmus
August 3, 2020
Copyright 2020
This past week US economy collapsed in the 2nd quarter by 32.9% at annual rate and nearly 10% just for the April-June period. Never before in modern US history—not even in the worse quarters of the 1930s great depression—has the US economy contracted so quickly and so deeply!
All the major private sectors of the US economy—Consumption, Business Investment, Exports & Imports—collapsed in ranges from -30% to -40% in the April-June period. That followed first quarter prior declines in single digits as well. More than $2 trillion in real economic activity was wiped from the economy. Consumption collapsed by more than -1.5 trillion. Business investment by nearly -$600 billion. Ditto net trade and even state & local government spending.
Even more foreboding is that the April-June collapse came as the economy opened up in June virtually everywhere and in many states even before in May. So the 2nd quarter collapse—as deep as unprecedented as it was—reflects a rebound of economic activity during the last six weeks of the quarter.
More worrisome still, even the weak May-June rebound has begun showing signs of stalling out as of mid-July, according to latest economic indicators.
Fading 3rd Quarter US Economy
Here’s some emerging evidence of that stall-out now beginning:
• Jobs Deteriorating Once Again
Weekly initial unemployment claims began to rise after mid-July. The numbers of new jobless claims are now consistently in the 2.2m-2.4m per week range as the economy enters August. Officially more than 32m are now collecting benefits. Millions more are still trying, or running out of them. Add to that the more than 5 million more workers who simply dropped out of the labor force since February. They’re not even calculated in the unemployment rate, according to official US government practices. So there’s easily 40m jobless out there in America—a number that’s remained pretty constant for months now. 40m unemployed is roughly a 25% unemployment rate, same as that during the worst of the 1930s great depression.
On Friday, August 7 the US Labor Dept. will report jobs and unemployment numbers for July. The reported consensus among economists is that it will likely show only 1.6m new jobs created, according to a survey reported by Reuters—a sharp slowdown after June’s numbers showed 4.8m. But 3 million of June’s new jobs represented workers returning to restaurants, hospitality, and retail work as the economy was reopened (prematurely) in May-June. Now, as the Covid virus has surged again in July, many of those 3 million who returned to work in May-June are being re-laid off in July or returning to sheltering as 30 states have again re-initiated partial shutdowns.
In addition to the Covid surge effect on jobs, scores of large companies have, independently of the virus effect, begun announcing mass layoffs by the thousands and tens of thousands. They have determined the economy’s situation is far worse than reported by the media or Trump administration and are planning for a long recession. Their layoffs will be mostly permanent due to long term restructuring.
If the 32m now collecting jobless benefits, plus those waiting to still get them, plus those who gave up and dropped out of work altogether equal 25% unemployment, how is it then that the US government keeps saying unemployment is only 11.1%?
It’s because that 11.1% is a cherry-picked low ball number for public consumption that conveniently represents only full time workers unemployment. If part timers laid off were included, even per the government’s own figures that’s 18%. Those numbers also don’t accurately count those who left the labor force or reflect the number of ‘gig’ jobs that are picked up as part of the 25% unemployed in the unemployment benefits numbers.
Another indicator of the renewed deterioration of the labor markets is the number of job openings reported by the government. That too has begun to trend down once again after mid- July just as the unemployment benefits claims began to rise in tandem.
• US Manufacturing & Construction Stagnant At Best
Manufacturing and construction account for roughly 20% of the US economy and GDP. The spin since the US economic reopening began late May has been all sectors of the economy have been bouncing back—services, manufacturing, construction. Facts show otherwise.
In Manufacturing jobs have continued to decline every month, according to Purchasing Managers Indexes (PMI) More companies continued to lay off workers in manufacturing than hire them during May-June. Manufacturing output continued to contract through June, with a reading of 49.8 (less than 50 indicates contraction). That rose to 51.3 in first half of July, but contracted again at the close of July finishing the month of July essentially stagnant at 50.9, according to the business research firm, HIS Markit.
The condition was roughly the same for construction. Per the US Commerce Dept., construction activity continued to decline by -1.7% in May and another -0.7% in June during the period of the economy’s reopening.
So with services’ industries and occupations re-shutting down in July once again, and with Manufacturing and Construction, stagnating at best—by end of July 2020 the US is teetering on the edge of faltering and ending the brief, weak and tentative economic rebound of late May to early July.
• Household Income & Consumption in Trouble
Consumption spending by households represents 70% of the US economy and GDP. The main determinant of household spending for the more than 100 million US working/middle class households is their wage income or, for working class retiree households, their pensions, social security benefits, & other income. Household income for tens of millions is now in a precarious state and is being reflected in reduced spending already.
According to a US Census Bureau report in July, 22% of households report that they now, as of July, can’t make their rent or mortgage payments. There are roughly 70 million renting households in the US. That’s more than 15 million US households and more than 30 million Americans!
According to Urban Institute research, it will cost $7.3B a month to keep renters and homeowners in their homes. That’s a little more than $50B for the next six months. But Republicans—Mnuchin, McConnell & Trump—all adamantly refuse to provide any of the $7.3B assistance. On the other hand, they quickly approved roughly $20B in the March Cares Act for Defense corps making billions in profits, passed the $760B in new money for the Pentagon in one day last week, and now propose another $30B for their Pentagon-Defense Corp. friends in their HEALsAct stimulus proposal announced in July.
Apart from the $760B new record Pentagon budget just passed in the blink of a political eye, that’s roughly $50B in new money for the Pentagon instead of $50B to keep tens of millions of working class households in their homes for another six months!
Already evictions of renters and foreclosures of homeowners are rising fast. It’s something of a myth that even the Cares Act of last March introduced a moratorium on rent evictions. First of all, that addressed only one third of the available rents—i.e. those backed by US government financing. Two-thirds have always been exempt. Even the one-third was not enforceable, moreover. Many areas of the US have continued with evictions throughout the pandemic period.
And now evictions are accelerating even faster in July, now that the Cares Act measure expired on July 25. No fewer than 12.3 million renters covered by the Cares Act lost their moratorium late July. That evictions acceleration, now underway, has resulted in reduced spending and consumption since mid-July and will no doubt depress spending even more into August and beyond.
In addition to the Housing crisis depressing income and consumer spending, there’s the parallel crisis of more than 15 million newly unemployed having no medical insurance. Studies show clearly those without insurance tend to spend less to save for medical expenses. A Commonwealth Health Care Fund survey in late June found that 21% of workers laid off lost all health insurance coverage from their employer and all sources during layoff since March. That means at least 8 million additional US households without health insurance since March. 8 million more—and rising as new unemployment claims also rise—who will spend less and compress consumption further and therefore US GDP in 3rd quarter.
Yet another major factor portends a slowing of household spending and consumption, further dampening any economic rebound: Congress’s reduction of unemployment benefits.
Debate is now intensifying in Congress on the scope and magnitude of a so-called ‘5th stimulus’ legislative package. At the heart of the debate is whether to continue the $600/week federal supplemental unemployment benefits instituted last March under the Cares Act. The cost of the $600/wk. benefit was estimated in March at $340 billion, for a period of four months. Were the $600 eliminated altogether, it would thus take roughly $85B a month out of the US economy.
Republicans in the Senate have proposed an immediate reduction of the $600 benefit to $200. Hidden in the proposal is a further reduction after two months at $200, by integrating the federal benefit with state unemployment benefits and capping both at $500. So at least 3/4s of the $600 would end, taking nearly $65B a month in spending out of the economy starting in August and for however long the benefit continue.
It is not surprising given the rising unemployment claims, pending evictions, growing ranks of health uninsured, and prospects of ending significant unemployment benefits—not to mention the resurge of the virus and growing partial re-shutdowns across dozens of states—that household consumer confidence shows evidence of fading in July as well. University of Michigan’s survey—considered the gold standard of the confidence research—recently reported that consumers’ expectations for the US economy over the next six months continue to slip further. In March 2020 the overall index fell to only 72.5, a historic low (>100 means positive; <100 means failing confidence). That remained at 73.2 in June despite the economy reopening. The next six months expectations index in June was 72.3 but by mid-July had deeply contracted further to only 65.9. Clearly, consumers are not optimistic where the economy is about to go and, to the extent their expectations affect their spending, the latter is not likely to recover soon.
In short, escalating housing evictions, more loss of health insurance coverage, and reduction of weekly unemployment benefits for tens of millions of Americans and households can only further significantly depress household consumption—70% of the economy—and thus undermine the already weak and fading May-June economic rebound.
Fading US Economic Rebound in Historical Perspective
During the depths of the crash in March-April, Trump, his administration spokespersons, much of the mainstream media, and many economists were predicting the crash would soon produce a just as rapid snap back of the economy beginning in June. That was called the ‘V-Shape’ recovery.
But recoveries are sustained, whereas ‘rebounds’ are not. This writer was publicly predicting last March the V-shape prediction was a fiction. At best, the trajectory of the US economy would prove to be ‘W-Shape’—as have all great recessions of which the current contraction has proven to be among the more severe. (Other ‘great recessions’ have occurred the last century in 1908-13, 1929-30, and 2008-11. None were V-shape. All were to some degree ‘W-shape’. And in one case, the ‘W’ transformed into an extended ‘U’ and the great depression of the 1930s.
W-shape trajectories are typical of great recessions. W-shape means a deep initial contraction of the economy is followed by a weak rebound, which then dissipates and produces a subsequent economic relapse in terms of growth and GDP. The relapse may take the form of a dramatic slowdown in the rebound or in the economic growth rate totally stalling out and economic stagnation occur next quarter. Or, yet a third possibility is that the relapse may prove even more severe and result in a renewed contraction once again—i.e. a double dip recession. In a W-shape typical great recession trajectory, the stagnation or double dip is in turn followed by another brief and weak ‘rebound’. And that rebound followed by yet another relapse. Triple dips are not impossible. That’s what happened to Japan after 2008 and almost to Europe as well after 2014.
This ‘bouncing along the bottom’ trajectory following the deep initial crash may go on for months and years—as was the case in the US after 1908 and again after 2009 as well.
Or, alternatively, the stagnation or further economic contractions may lead to a subsequent financial and banking crash that drives the economy even deeper, ratchet-like, to become a de facto economic depression. That was the case after 1930.
What’s happened to date in the US, from early March through July 2020, shows the US economy has clearly fallen into a great recession again–and this time three times deeper than in 2008-09 and in one third less the time!
It is unprecedented. And it represents totally new territory that mainstream economists have no analog experience from which to speculate as to its medium and longer term trajectory into 2021. Indeed, the mainstream economics community has no clue. They are content, as they typically are won’t to be, with predicting the present instead of the future—although very few now bother to say it’s a V-shape recovery. Only the polyannas in the Trump administration still adhere to that nonsense and that fiction.
The first phase of the 2020 Great Recession has passed. That was the deep and rapid contraction of 10% (32.9% annualized). The second phase began with the weak June rebound that continued into early July. The question now is whether that weak rebound will transform into a relapse in the form of a rapid slowing of the economy once again—i.e. a third phase. Or perhaps just a second phase, with the weak rebound of May-June representing a juncture or transition between phases.
Beyond the coming 3rd quarter the central question is whether the US economy will experience yet another weak, short and shallow economic rebound? If so, the W-shape trajectory of the current Great Recession 2.0 will be further confirmed. Another possibility is the contraction will even out and settle into a longer term stagnation. Yet a third outcome is further shocks to the economy will drive it into yet another sharp and deep contraction.
There are three possible ‘drivers’ that would result in the latter outcome: a failure of Congress and policy makers to introduce a sufficient fiscal stimulus directed at household consumption stimulus; a major political and constitutional crisis occurring surrounding the November 3 national presidential elections; or a chain reaction contagion in financial markets provoked by spreading business defaults and bankruptcies—either in the US or abroad.
The nation should know fairly shortly whether Congress—driven by Republican and conservative-radical ideologues—fails to pass sufficient fiscal stimulus as the economy fades in the 3rd quarter.
The second outcome is becoming increasingly likely by the day. Trump clearly has no intention of leaving office by normal processes. A close electoral college vote will further ensure a political crisis in the US of dimensions never before experienced. The economic consequences will prove severe. Those possible scenarios will be described shortly in another article.
Third, although a major financial instability event is not yet imminent, the longer the W-shape great recession trajectory continues, the more likely such an instability event becomes. Moreover, when it does, it will appear swiftly, unexpectedly, and no less severely in terms of its impact on the real economy of households, workers, and even businesses in general.
Dr. Jack Rasmus
August 3, 2020
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For a shorter, 15 min. commentary on the US GDP report released yesterday, listen to my interview today with Loud & Clear radio show. (For the longer hour commentary, my own Alternative Visions radio show today in the link and podcast below it).
https://www.spreaker.com/user/radiosputnik/gdp-report-shows-worst-ever-decline
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TO LISTEN to the 15 min. Short Version GO TO
https://www.spreaker.com/user/radiosputnik/gdp-report-shows-worst-ever-decline
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Listen to my July 31 Alternative Visions radio show podcast dissecting the 2Q US GDP -32.9% Collapse and why the #3rd Quarter Rebound is also fading. 4 Myths about the US economy’s ‘recovery’ discussed and what may occur yet to trip the current recession into a bona fide great depression by 2021.
https://alternativevisions.podbean.com/e/2nd-quarter-us-gdp-collapses-june-rebound-fading/
Dr. Rasmus dissects the just released data for US economy’s 2nd quarter GDP stats, confirming his March prediction of W-shape recovery, no V-shape and no 2nd half recovery. The 4 myths are discussed: Fast recovery in second half 2020; US economy was strong in 2019; consumer households were doing great in 2019 and will bounce back again in 3Q20 if the economy reopens; Congress’s March 2020 Cares Act is sufficient stimulus for sustained recovery. (i.e. Republicans’ message there’s no need to rush to another massive stimulus bill). The two great ‘wild cards’ that could throw the US economy into depression in 2021: Trump’s generated political-constitutional crisis around Nov. elections + financial instability in 2021 as business and household defaults deepen.
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TO LISTEN GO TO
https://alternativevisions.podbean.com/e/2nd-quarter-us-gdp-collapses-june-rebound-fading/
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SHOW ANNOUNCEMENT
Dr. Rasmus dissects the just released data for US economy’s 2nd quarter GDP stats, confirming his March prediction of W-shape recovery, no V-shape and no 2nd half recovery. The 4 myths are discussed: Fast recovery in second half 2020; US economy was strong in 2019; consumer households were doing great in 2019 and will bounce back again in 3Q20 if the economy reopens; Congress’s March 2020 Cares Act is sufficient stimulus for sustained recovery. (i.e. Republicans’ message there’s no need to rush to another massive stimulus bill). The two great ‘wild cards’ that could throw the US economy into depression in 2021: Trump’s generated political-constitutional crisis around Nov. elections + financial instability in 2021 as business and household defaults deepen.
Posted in Uncategorized | 1 Comment »
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