A couple weeks ago I wrote an article, ‘The Forgotten Working Class’, which is posted on this blog and other public blogs. In it I asked why aren’t we honoring those workers who are keeping the entire system from collapsing, not just honoring with nice words but with appropriate compensation to recognize the key role they’re playing keeping society going. And not just the obvious first responders, healthcare workers, fire and public safety workers–but many other categories of occupations just as critical. Workers who keep going to work despite the conditions and the increasingly obvious failure of the national government in Washington to manage the crisis. Just as critical occupation category is utility workers–gas, electric, water, waste pickup, and so on.
I recently received a ‘thank you’ comment from a water utility worker for writing the article. I’m posting his comment here. And posting as well my reply to him. In my reply I close with the comment that should the crisis worsen, we will depend on folks like him even more. Management and owners of many companies may abandon their operations. In such cases, the workers themselves must take over and ensure their utilities continue to function to keep society from imploding further. Yes, they’ll have to self-manage their companies. In the utility sector this will be more imperative and necessary than in most other industries. We can’t go without electricity, water, heat, waste pickup, no less than can we go without food production & delivery.
Readers should not think a further deterioration will not occur. Anything is possible given the political mismanagement of the country we’re now experiencing. US politicians are not getting control over the effects of the virus pandemic. In many ways, it’s getting worse, especially in the now politically dysfunctional US society and economy. There is virtually no testing (only 1% of the population has been tested). But Trump and the business forces behind him are pushing to open up the economy prematurely. They are willing to accept a certain number of deaths in order to keep their revenues and profits coming.
There are already signs that countries that thought they had the virus contained are now experiencing second waves of infection (e.g. So. Korea, Japan). This virus is not a simple respiratory virus like a flu. It increasingly appears as a virus affecting the blood-hemoglobin system in humans, causing breakdowns in multiple organ systems within the body via contagion through the circulatory system. There is little understanding as yet as to the nature of the virus. Nevertheless, Trump and his business buddies are in a hurry to open up the economy. That makes a possible second wave later this year likely. How will the economy stabilize should that occur? Not well.
History shows in crises like this–caused by war, disease, and social collapse–that capitalists and their managers often abandon their posts. Workers then must save their own jobs and take over the management of the operations of their companies. They must do this not only to protect their jobs, but in the case of utility workers, food workers, health workers, in order to protect all of us.
Here’s the ‘thank you’ comment from a water utility worker, followed by my own reply to him, thanking him far more and not just in nice words.
UTILITY WORKER:
Hello dr. Rasmus,
I have just read through your much apricated article about the forgotten working class. I myself have worked in a water plant as a operator for the past 7 years and we were essential before it even because a popular word, we have to drive to work in level 3 snow emergencies when only first responders are supposed to be on the road because our job is ESSENTIAL. it has really burned me up of late that myself and other utility workers be it water, gas, or electric are completely forgotten about. They keep talking about fast food, and grocery workers getting more and more “rewards” but not a single thing about utility. In the essential workers wear capes bill that was purposed I didn’t even notice any mention at all about utility workers. It seems as long as someone has running water, lights are on, and heater kicks on… we don’t exist. I tried contacting my local senator about the issue, but as you can imagine was impossible. Then I came across your article and it was so refreshing seeing someone bring up these issues. Its about to get so bad at my plant that we are in talks discussing the operators live at work.. yes live in the plant for weeks on end. We have had our personal time canceled, and being able to take a sick day causes cascading issues to the other operators who have to pull extra hours to cover it even though we have a cover shift at all our plants they are already working extra hours as well. People say “your lucky you have your job” , well I have severe asthma and I go to work everyday risking infection like the other people who get noticed do.. But we get no credit at all, while we keep your utilities going. I signed up for this job knowing we were considered essential and had to go to work everyday no matter what was going on, but its so disheartening to see that no one in the utility field getting any sort of recognition during this time where jobs before weren’t considered essential while we were. It just goes back to the saying we have, As long as they have running water, they don’t even know we exist, but soon as it stops they yell to the heavens about it. Anyway, thank you for giving us some credit in your article, it was very apricated.
MY REPLY TO HIM:
I agree with you. And there should be not just appreciation but there should be special compensation for utility workers. Not just words but action. Without you (especially water) the entire economy would collapse in less than a week. Faster than if even the food supply were disrupted. Here’s the simple rule of thumb: humans can survive for only 3 minutes without air and oxygen. They can survive best case for 30 days without food. And they can survive only 3 days without water. 3 days. Sometime between 3 and 7 days, without water, the entire society enters chaos. Thanks to you and your brothers and sister utility workers, chaos is still held at bay. But you ought to be rewarded for it. At least time and one half emergency pay for all hours worked. And extra paid time off when (if) the current crisis is over, so you can do some R&R and recuperate from the stress. At let me say one more thing: if this crisis gets worse, companies and their senior management may walk away from the job. In that case, you workers must rescue us. I’m talking about taking over your operations and keep them going, for the benefit of the rest and indeed civilization itself. Don’t let them close it down. Take it over and managed it yourselves. You know how. Just keep that in mind. Dr. Rasmus
Epic or ‘great’ recessions are caused by the overlapping or congruence of financial-banking crashes and the deep contraction of the non-financial real economy. A contraction in the financial economy can precipitate and exacerbate a contraction in the real economy. And vice-versa. By ‘real’ is meant GDP–that is, investment in buildings, equipment, inventories, etc., and household consumption. By ‘financial’ is meant financial assets like stocks, bonds, derivatives, options, futures, etc.
In a ‘normal’ recession, forces cause the ‘real’ economy to contract–i.e. GDP to go negative. Such real contractions are typically short lived, however, typically less than a year. And there is no corresponding financial asset price crash, credit crunch, defaults or bank failures.
In contrast, in an ‘epic’ or ‘great’ recession, either a financial crash precipitates and drives a real economy lower than ‘normal’ for a recession; or a real recession leads to an eventual financial crash and a deeper recession. In both cases, the dual contraction results in both the financial and real side of the economy exacerbating each other. The contraction thus goes deeper, and therefore lasts longer–typically in a great recession 12 to 24 months; sometimes longer, with short shallow recoveries followed by short, brief re-recessions. The latter describes Europe after 2009, with a double dip recession 2011-13 and weak recoveries followed by stagnant barely 1-2% growth. It reflects even more the case of Japan after 2009, which experienced three recessions over the next ten years and very weak recoveries between.
To understand the dynamics between financial cycles and real business cycles, it is necessary to understand the relationship and causal interactions between financial asset investing in stocks, bonds, etc., on the one hand, and real asset investment in buildings, structures, plant, equipment, inventories, etc. In both cases of financial and real investing, the growth of excess debt is a ‘marker’ of the growing potential for instability (contraction). Debt grows in late capitalism at double the normal rate. Credit is extended, creating a debt, for the expansion of real investment; but it also grows, increasingly and ever-more rapidly in the 21st century, to fuel financial asset investment. Understanding how debt makes both forms of investment ‘unstable’–or to use an alternate term ‘fragile’ and prone to crisis–is central to understanding how and why financial cycles and real business cycles overlap and exacerbate each other, in the process creating more severe downturns called ‘great recessions’.
But debt levels by themselves are not the cause of crises. What matters is the ability or inability to ‘service’ that debt–i.e. pay its principal and interest when due. So long as prices for financial assets continue to rise, and prices for real goods and services continue to rise as well, debt levels may rise in turn without creating a crisis. However, when prices deflate, and revenues and cash flow with which to ‘service’ the principal and interest on debt collapse in turn, then debt levels matter. In other words, it is the relation between debt and price deflation, and revenues/cash that is central to fragility. A third element is critical as well. Defaults, which mean failure to pay interest or principal on the debt coming due. Defaults lead to further declines in price (deflation), revenues, and available cash with which to service the debt. A downward spiral of both financial asset and real asset investment follows, the one exacerbating the other in a mutual negative feedback effect.
The following Part 2 excerpt from my 2010 book, ‘Epic Recession: Prelude to Global Recession’, described these basic relationships between financial asset and real asset investing, debt accumulation, deflation, and defaults in the run-up to the 2008-09 dual financial-real economy crash. It is the causal interaction of these variables that drive the deep, dual contraction called great recessions. In 2008-09 it was the financial contraction that precipitated and drove the real contraction; today, 2020, it appears more likely this will be reversed, with the real side driving the collapse of the financial side.
Real Investment As Basis for Financial Investing
Financial investment begins on a base of real asset investment. For example, a property, i.e. a real asset, must be built before a mortgage, or financial asset based upon that real asset, is in turn issued. Thereafter, additional financial assets may be issued based upon the initial financial asset. These are called derivatives. A mortgage forms the basis for the issuance of a mortgage bond composed of various individual mortgages or parts of mortgages. The growth in real assets thus initially provides the basis for subsequent expansion and growth of financial assets. But the process of financial asset creation soon diverges from its real asset base. And the more they diverge, the more asset price inflation is driven by forces independent of original real asset investment. And as asset inflation becomes more independent it also becomes more volatile.
Concerning the real investment side: in the early phase of a business cycle, opportunities for profitability from real asset investment are greater than in late stages of the cycle. Prices for materials and intermediate goods, and therefore costs, are relatively low. There are few pressures in labor markets to raise wages. Costs are therefore minimal and possibilities for rapid gains in productivity higher. All things equal, lower costs mean higher expected profits and therefore plans for increasing real asset investment. Expectations that prices will increase as the business cycle develops means additional expected profits and plans for investment. Product development preparation during the recession, in anticipation of recovery, provides an additional potential boost to investment. In short, expectations of profitability are higher than average in the beginning of a boom phase and therefore plans for, and actual, investment higher than average. But over the course of the business cycle, the above positive elements weaken, profitability ebbs, and with it plans for, and actual levels of, real asset investment. But that does not necessarily inhibited financial asset price inflation from accelerating.
As investment in real assets initially rises, the foundation for financial speculation also rises. In the beginning, speculative investing is based on prior real asset investing. For example, residential and commercial property real assets must be created first, before subsequent speculation on those assets is possible. Similarly, a supply of commodities—whether food, oil, metals, or in other forms—must be created before speculation on those commodities can occur. Issuing new stock with which to finance real investment results in stock price volatility, upon which speculators may then enter the market. Similarly for bonds created from bundling of mortgages. Whereas the initial mortgage represents a first tier financial instrument, the stock price appreciation and bond yields represent second tier financial instruments.
To summarize, real asset investment initially provides a basis for speculative financial asset investment. As the latter accelerates, it creates a new for additional real assets on which to create further financial assets. It may thus artificially stimulate real asset investment to a degree. But as will be described shortly, increasingly over the boom cycle speculative asset investing becomes based less on real asset investment but more on previously created financial assets. As a consequence of this shift, disproportionality grows between real asset investment and speculative asset investment.
Financial Asset Speculation As Driver of Excess Financial Investing
The preceding described how the real asset provides the basis for a speculative financial asset. The house creates a first tier ‘mortgage’ and mortgages of various homeowners are bundled to create a ‘mortgage bond’ (RMBS), a second tier financial instrument. But there are further ‘tiers’.
A third and even fourth tier occurs when yet another layer of financial instrument is created on the preceding layers. Stimulating the demand for third and fourth tier financial assets are the availability of extreme ‘leveraging’, as well as the spread of securitization and widespread availability of secondary markets in which to sell the third and fourth tier of financial products.
In the third tier, previously created second tier financial instruments are repackaged, then mixed with other short term financial issues like asset backed commercial paper, or ABS. The new repacked financial issue is marked up in terms of price, and then resold once again in other secondary markets. These resales are often global, since the product itself has no distribution costs and is available electronically. These financial ‘products’ also have virtually no production costs. Supply is not a factor and plays little or no role in pricing of these products. Price movement of third tier instruments are even more independent of the original real asset. They become virtually demand driven, and thus quite unlike prices for real asset products, where tightening supply and slowing demand over the course of a business cycle eventually constrain further price increases. Financial asset prices, in contrast, have no supply constraints and are driven by ever greater demand almost exclusively.
As prices for second and third tier financial assets begin to diverge from real asset prices, supply and demand forces begin to slow real asset price increases as expectations of profitability weaken and decline. Declining expectations for profitability leads to slowing real asset investment. Real asset investment slows, just as financial asset investment begins to accelerate. More liquidity and credit subsequently flows into speculative investing and out of real asset investing. In other words, an imbalance and disproportionality begins to emerge between real asset investment and more speculative forms of financial asset investing, as well as between their respective price systems.
In this situation, creators of financial instruments are confronted with a dilemma: either get more physical asset investment into the pipeline or create more speculative financial instruments from other financial instruments. This is what precisely occurred during the subprime mortgage boom in the U.S. Banks and other financial intermediaries in the U.S. needed a continued flow of mortgages loans in order to create their residential and commercial property mortgage-based bonds, RMBS and CMBS financial instruments, to securitize and resell into secondary markets. So they sent people into the field to instruct mortgage lenders how to develop a greater volume of mortgages and loans. This was called ‘originate and distribute’. Quantity of mortgages was all that mattered, not quality.
First and second tier financial assets are mortgages, bonds, stocks, etc., whereas third tier financial assets are even more highly leveraged, further securitized, and resold in global secondary markets. These include typically collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), asset backed commercial paper (ABCPs) and other asset backed securities (ABS)
There is a fourth tier of financial instruments as well, however. That is the creation of credit default swaps (CDS) and other insurance instruments as cover for the increasingly risky character of second and third tier instruments’ quality and quantity. But CDSs quickly become more than mere insurance. There are, in effect, essentially ‘bets’ on the likely degree of failure of the prior tiered instruments. As profitability from financial speculation rises with financial asset inflation, it in turn fuels even more speculation in various ‘higher level’ derivatives like CDSs. Other fourth tier instruments include interest rate swaps, currency swaps, and other over the counter derivatives. These are all forms of ‘casino investing’, or investment as pure ‘betting’.
To partly sum up, real asset investment initially enables speculative asset investment. But as the general business cycle develops, the much greater price-driven profitability of financial speculation begins to feed upon itself. Financial speculation creates more financial speculation, thus increasingly diverting capital from real investment just at a time when growing supply constraints begin to raise costs of real asset investment, lower its expected profitability, and in turn consequently slow real asset investment. The falling real returns, actual and expected, from real investment diverts liquidity and credit even more to speculative investing, which drives the demand and price of the latter still further. Speculative asset prices begin to accelerate while real asset prices slow. The former becomes relatively and increasingly profitable and the latter less so. .
As professional investors and their ‘shadow’ institutions grow in number, weight and the liquidity they control, the overall effect is an increase in demand for speculative assets and a slowdown of the demand for real asset investment over time. Speculative forms of investing therefore have over the longer run a relative net negative impact on non-speculative asset investment. It is not that speculative investment ‘crowds out’ real investment, but that it diverts and distorts it. It over-stimulates some forms of real investment, while it slows other forms of real investment while the net effect is negative. Major disproportions and imbalances are the consequence—which become major contributing forces to financial instability.
Financial Investing and Acceleration of Excess Debt Accumulation
There are at least two ways in which speculative investing accelerates the accumulation of debt. It does this first by transforming debt simple leveraging into a kind of super ‘layered-leveraging’. By layered-leveraging is meant securitized leveraging. As previously noted, speculative investing by definition relies heavily on leveraging per se, just as it does on opportunities that are short term and price driven. However, securitization significantly increases leveraging even further (and thus levels of debt) by enabling multiple ‘tiers’ of leveraging. That is, at each tier of financial investment, the purchase of each repackaged financial asset is leveraged. Leveraging thus occurs multiple times. For example, mortgage bonds are rolled into collateralized debt obligation (CDO) securities. Those CDOs are repacked into and resold as part of a ‘synthetic’ CDO—a CDO created out of bundling other CDOs. Credit default swaps are created to ‘insure’ against the risk of the preceding. Along this chain of ‘financial instruments created out of financial instruments’, additional leveraging and borrowing—and thus debt creation—takes place at each level. In short, securitization multiplies the volume of debt by enabling levels or ‘tiers’ of leveraging. We have debt and leveraging based upon previous leveraging and debt.
Securitization additionally promotes greater investor risk taking, all things equal. With the possibility of quickly selling the asset after a short term on a secondary market, the investor develops a false sense of reduced risk that encourages further speculation and leveraging. If there’s a secondary market, investors believe they can quickly dump the asset by reselling it should its price stop rising or begin to fall. The very existence of secondary markets for securitized assets therefore encourages excess risk taking. As Keynes put it, they believe they can determine what the average investor will do better than the average investor can and that they can ‘get out’ before the market slows or collapses.
In short, securitization and secondary markets serve to increase the trend toward speculative investing by appearing to reduce risk and by enabling layered-leveraging. The greater leveraging and false sense of reduced risk translate into a greater volume (and reduced quality) of debt than otherwise would occur. The problem is that secondary markets for securitized assets work as an exit only when asset prices are rising. As soon as asset prices begin to fall rapidly, there is no secondary market in which to exit from. Everyone is trying to sell and no one is buying—and by definition there is no market when no one buys and everyone tries to sell.
(In Part 3 to follow: The Debt-Deflation-Default Nexus & Great Recessions)
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Much can be learned about the trajectory and nature of the current 2020 Great Recessions 2.0 underway by understanding what went on in similar deep economic contractions that are combined with financial-banking instability and crashes. The so-called ‘Great Recession of 2008-09’ was one such ‘dual’ crisis. Another occurred in early years of the Great Depression of the 1930s, from 1929 to 1931. Another is the financial crash of 1907-08 and its aftermath of four years of stagnant growth and re-recessions. What follows is an excerpt from my 2010 book, ‘Epic Recession: Prelude to Global Depression’, specifically the chapter 3 entitled ‘The Dynamics of Epic Recessions. (Note: what others called the ‘Great Recession’ I alternatively called ‘Epic Recessions’ to distinguish them from ‘normal’ recessions). In it I explain how excessive liquidity injections by central banks feeds financial instability and excess debt accumulation throughout the economic system. Excess debt build up during the ‘boom’ period makes the economic system ‘fragile’–meaning sensitive and prone to deep contractions. The contractions, when they come, generate deflation in both financial and goods prices that, together with the debt unwinding, lead to widespread defaults, in both financial and non-financial sectors of the economy. That condition drives the economy into a further deeper contraction. Banking and financial crashes follow. All great (aka epic) recessions are made of such dynamics, which differentiates them from ‘normal’ recessions. Great Depressions are when defaults provoke a sequence of multiple financial-banking crashes.
In a number of ways the current 2020 events are increasingly similar to prior ‘great’ recession events. The process is still, of course, in early stage and evolving. But the special, very severe contraction underway as of spring 2020 portends an especially severe form of Great Recession. The Fed and other central banks are desperately trying to head off a financial-banking crash by throwing unprecedented magnitudes of free money at the financial institutions. And now at the non-financial sector as well for the first time historically. Whether this ‘all in’ strategy can succeed in preventing defaults, deep financial asset price deflation, and a system wide credit crash remains to be seen. The process will take months, not weeks, to work itself out. But against the system stabilizing as a result of tens of trillions of dollars of free money is the US and world economies were especially weak on the eve of the virus impact–not strong as some politicians like to argue. Moreover, monetary policy was largely spent stabilizing the 2008-09 crashes, and thereafter in continuing to subsidize capital incomes and profits instead of preparing for the next cycle. Ditto for fiscal policy, that continued to subsidize capital incomes with massive tax cuts for investors and businesses alike–in the US no less than $10 trillion in such tax cuts, to which Trump added another $5 trillion in 2018-19. Budget deficits surged to more than $1 trillion. In short, fiscal policy like monetary policy on the eve of the current crisis was rendered largely ineffective for the coming crisis. The global economy is also decidedly much weaker this time around as well, with a global manufacturing recession the case in 2019 and trade wounded by Trump’s global trade war launched in 2018.
What follows is the excerpt from my 2010 book, ‘Epic Recession’. Its themes were picked up and developed thereafter further in my 2016 book, ‘Systemic Fragility in the Global Economy’ concluding chapter. Further excerpts from the 2010 book will follow this posts; and after that the updates in the 2016 book. So here’s Part 1 on liquidity, its role generating excess debt, and what I called at the time in 2010 the ‘debt-deflation-default nexus’.
CHAPTER THREE:
The Dynamics of Epic Recession
The two preceding chapters addressed static quantitative and qualitative characteristics of Epic Recession. This chapter is concerned with the dynamic characteristics of Epic Recessions—i.e. those characteristics that explain the processes by which Epic Recessions evolve over time.
At the top of the pyramid is the explosion in global liquidity. Liquidity is cash and near-cash forms of liquid assets that can be relatively easily and quickly converted to investment. That investment may take the form of real physical assets, like structures, equipment, inventories of products, etc.; or the form of financial assets, like bonds, commercial paper, stocks, derivatives financial instruments, and so forth. Whichever the form, the point is liquidity is the basis for investment. It is the source for issuing credit and thus debt. The extension of credit becomes the debt of the borrower of that credit. Liquidity enables banks to issue loans, corporations to issue bonds, speculators to purchase derivatives, etc.
There are several major sources responsible for the exploding liquidity in the U.S. and global economy over the last several decades. All have contributed to the growing volume of liquidity, such that today there is now a flood of liquidity awash in the global economy. The unprecedented surge in liquidity is the source of credit and corresponding debt accumulation. And it is that credit and debt acceleration that has fueled and enabled the run-up in speculative investing to historic, record levels in turn.
One source of the global liquidity explosion has been the U.S. central bank, the Federal Reserve. Since the dollar became the de facto global currency in 1944 (and the virtual de jure global currency since 1971 when the last fiction of a gold standard was abandoned), U.S. monetary policies for more than half a century have been injecting trillions of dollars into the U.S. and global economies. That’s trillions of dollars of excess liquidity that has accumulated globally in the hands of investors public and private, corporate and sovereign, individual and institutional.
It represents a record volume between $20 and $40 trillion of investible money capital that cannot lie idle and must find an outlet.
The Fed enables the expansion of credit in the commercial banking system by means of buying government bonds back from the banks, changing their minimum reserve requirements of those banks, or loaning money to individual banks directly through the Fed’s ‘discount window’. Since December 2007 it has added a fourth new ‘tool’ for injecting liquidity into the economy called targeted ‘auctions’ designed to provide massive bailout funding for banks, shadow banks, and even non-financial corporations. By means of these special auctions over the last two years, the Fed has injected or committed to provide between $2 and $11 trillion, depending on which accounting approach one chooses. But Fed actions since December 2007 constitute only the latest of a long string of liquidity pumping actions by the Fed.
When there’s a recession, the Fed injects liquidity. That occurred in response to the normal recessions that happened in 1966, 1970, 1973-75, 1980, 1982, 1990, and 2001. In addition, every time there’s a financial instability event, the Fed injects still more liquidity to offset banks’ anticipated losses to keep them from insolvency and lending. That occurred 1987-1988 in response to the stock market crash of 1987; in 1989-1992 to bail out the savings and loan and junk bond markets; 1997-1998 to rescue the Long Term Capital Management hedge fund and Asian banks and financial institutions with ties to U.S. banks; in 1999 to counter fears about computers coming to a stop with the change in the millennia (a phony mini-panic called the Y2K or ‘year 2000’); 2000-2001 to counter the tech-driven stock market bust, and 2002-2004 to keep the housing market going as the rest of the economy faltered. On occasion the Fed has even injected liquidity to assist Presidents in their election bids or war policies, such as in 1971-72 in the case of Nixon and 2003-04 for George W. Bush.
In contrast to its long term policy of pumping liquidity into the economy, the Fed has done little in the way of successfully retracting that same liquidity after recessions, major financial instability events, or following the accommodation of Presidents’ political demands. The roughly twenty years of Fed ‘net’ liquidity injections into the U.S. economy, from 1986 to 2006 under the chairmanship of Alan Greenspan, has become known as the Greenspan ‘Put’. Since 2007, an even greater net liquidity injection has occurred under its current chairman, Ben Bernanke. It will no doubt eventually become known as the ‘Bernanke Put’—i.e. a far greater amount in a much shorter period of time.
The Fed’s decades-long, pro-liquidity policies not only contributed to a build-up of liquidity within the U.S. economy, but did so throughout the global economy as well. To the extent easier credit from the Fed was accessible to U.S. banks with operations and dealings abroad—which has become the case increasingly since the early 1990s—some of that Fed-provided liquidity to those U.S. banks was undoubtedly diverted offshore. Similarly, loans to non-bank U.S. companies with foreign subsidiaries no doubt resulted in liquidity flowing offshore to those subsidiaries, as well as for those multinational companies’ growing acquisitions of additional offshore assets since 1990. The latter is called Foreign Direct Investment, or FDI, and that too has been fueled by Fed monetary policies’ creating excess liquidity in the system.
Other U.S. government policies have also contributed to the growth of dollar liquidity globally. U.S. government policies providing foreign aid to sovereign countries for decades increased the flow of dollars and liquidity from the U.S. into the global system. So did funding of U.S. military bases and operations around the world. And policies of free trade, that resulted in chronic and rising U.S. trade deficits since the 1980s. Trade deficits have meant net annual outflows of hundreds of billions of dollars every year from the U.S. economy since the 1980s, culminating in more than $700 billion trade deficits for four years running during the mid-2000s alone. A further consequence of U.S. free trade policies has been the expansion of U.S. companies’ foreign direct investment, or FDI, which, as previously noted, have transferred additional billions of dollars offshore. Then there’s the major structural changes that have occurred in the U.S. tax system since 1980 that have permitted wealthy U.S. investors, individual and institutional, to shift decades of money capital from capital gains, dividends and interest income into offshore tax havens to avoid tax payments to the U.S.—in dozens of small or island nations from Cayman Islands to Seychelles to Vanuatu to Switzerland and beyond. All the above developments have combined to enable a flow of trillions of dollars into offshore venues—going into foreign central banks, private banks and financial institutions, offshore hedge and investment funds, personal and corporate accounts in tax havens, etc. Thus, while the Fed has obviously been a major contributor to the steady growth of liquidity in the U.S. and the global economy, it hasn’t been the only source. U.S. government military, trade and tax policies have contributed as well.
In addition to the Fed, and U.S. military spending, trade and tax policies, at least two other major forces have additionally contributed to the historic expansion of liquidity worldwide in recent decades. One is what is sometimes called the ‘global savings glut’.
There are different interpretations of the meaning of the ‘global savings glut’. For former Federal Reserve chairman, Alan Greenspan, the ‘global savings glut’ represents the accumulated reserves held by foreign central banks, private banks, and investors.
It is the global savings glut, as Greenspan defines it, that caused the flood of liquidity into the U.S. between 2002-2005 that drove down mortgage interest rates, which in turn caused the subprime market boom. It wasn’t the Fed lowering short term rates to 1% and keeping them there for nearly two years that caused the speculative boom in residential housing. The housing bubble occurred worldwide, not just in the U.S. It was the excess global liquidity that flooded into the U.S. housing market that was the culprit. The cause therefore was the glut—sometimes referred to as another sanitized term, ‘global imbalances’—that was responsible. The bubble was thus beyond the Fed’s or any central bank’s control. But even if it is true, as Greenspan maintains, that the post-2002 boom occurred simultaneously in many global markets not just the U.S. and the Fed therefore could not have been responsible; even if one were to agree with him that the global savings glut washing back onto U.S. economic shores circa 2002 was the sole cause the U.S. subprime housing bubble—what then explains the origins of that ‘global savings glut’ itself?
First, data is irrefutably clear that the U.S. housing price bubble began in 1997, not in 2002. The speculation in residential housing markets preceded the Fed’s 2002 lowering of rates as well as the alleged 2002-05 foreign investment inflows by at least five years. Both the Fed’s low 1% rates and the simultaneous global liquidity inflows contributed to the subprime housing bubble. But neither was the originating cause. The subprime boom of 2002-2005 was just the culminating phase of the housing bubble. What set off the start of housing speculation and the beginning of the run-up in housing prices around 1997-1998 is the fundamental question Greenspan must answer, but doesn’t. In addition, Greenspan must explain further why the dot.com technology stocks bubble originated around 1997 as well, and why the speculative bubble in Asian currencies that led to the Asian financial meltdown in 1997-1998 (that in turn spread to Russia and Latin American economies, and required the bailout of the big hedge fund, Long Term Capital Management in 1998) occurred as well circa 1997-1998? What was beginning to happen circa 1997-1998 that precipitated all three bubbles? Was it just coincidental that all three speculative bubbles commenced around the same time? Or is there a common thread and origin to all three?
The global savings glut begins with the river of dollars with which the U.S. flooded the world for decades as a direct consequence of its monetary, fiscal, and military policies. But that flow of dollars was only the start—a kind of priming of the global liquidity pump. The ‘global savings glut’ has been equally important factor contributing to the global liquidity explosion. The glut is the product of the past three decades of unprecedented profits, income and wealth accumulation. But it is not faceless ‘savings’ or ‘reserves’, as Greenspan and others call it. Those are misleading terms that function for the purpose of obfuscating a deeper meaning. The ‘glut’ is in fact the accumulation and concentration of income and wealth among certain strata of investors worldwide, taking the form of excess money and credit capital, that is now increasingly seeking out and flowing into speculative investment opportunities globally at an increasing rate. The glut therefore has a face: the rising global ‘investor elite’ of individuals, funds, investing institutions, corporations, banks, shadow banks and central banks.
The income-wealth accumulated by that elite more than three decades now has derived from both real asset and speculative asset investment, but increasingly in recent years from the latter and decreasingly from the former. The real asset investment has concentrated in manufacturing and infrastructure investment in the so-called ‘BRIC’ countries—i.e. Brazil, Russia, India, and especially China—and to a more limited extent in certain industries like energy extraction and commercial building the petro-economies. The rising share of accumulation of income and wealth from speculative investing has come from commodities, oil, gold, metals, currency and stock speculation, futures and options trading, land and commercial properties, funding of mergers and acquisitions, infrastructure bonds, buying and selling in secondary markets, securitized financial assets, credit insurance, and a host of other derivative based financial instruments.
Once again, the ‘glut’ is therefore not really about ‘savings’ or foreign investors’ reserves. That is a misnomer for what is in essence a concentration of income and wealth among a global strata of investors with a unique control of new, as well as old, forms of money capital. The glut represents global income inequality—not between nations but between the investor classes within most nations and their non-investor countrymen. This investor elite of course includes members in the advanced economies of North America, Europe and Japan, just as it does those in Singapore, Hong Kong, Dubai, Soeul, Shanghai, Rio, Bangalore and elsewhere. It is not about third world or ‘emerging markets’ investors. It reflects a global transformation of capital, as well as a restructuring of the various constituent elements of the class in control of that capital.
In addition to the Fed and U.S. military spending, trade and tax policies, and the global savings glut, there is yet a fourth major source of the global liquidity explosion. The policies of the Fed and U.S. government that since 1945 flooded the world economy with dollars, and the policies that since 1980 set in motion the concentration of income on a global scale do not, by themselves, fully account for the explosion of liquidity of recent decades. That record liquidity was also the consequence of the revolution in credit creation that has been unleashed in large part by the shadow banking system.
Normally liquidity is created in the banking system when the central bank of a country injects money into its banking system. That money injection increases the reserves on hand in the banks with which to extend credit to borrowers. As the banks lend the money to customers the money supply increases in the economy. The actual process of credit creation occurs when the private banks actually extend loans—i.e. credit—to borrowers who subsequently make investments. This describes a traditional process by which a central bank (Fed) determines the amount and timing of liquidity injection and credit. But that liquidity creation process has been giving way progressively over recent decades to a different kind of credit creation system that is growing relatively more independent of the central bank and whatever action it may take. Central banks’ injection of money into the banking system may lead to an increase in credit as banks loan out the money to borrowers. But banks’ credit extension is not limited to this process. Banks and shadow banks provide credit, but have been doing so increasingly independent of the money supply and central banks (e.g. Fed) money supply management processes. In other words, credit is becoming unhinged from money.
In the new system of credit, financial instruments themselves are used as the basis of credit extension and thus borrowing and debt. For example, when a financial instrument, like a collateralized debt obligation derivative, is created based on a subprime mortgage, and the market value of that derivative rises, that increased market value is then used as the basis for issuing further credit to purchase yet more financial instruments. Investments are not made based on the central bank increasing or decreasing the reserves banks may have on hand. Loans and credit extension have now little or nothing to do with banks’ existing levels of loanable excess reserves. Because these financial instruments are tradable immediately on secondary markets short term, they are more or less ‘liquid’; that is, can be used like money to purchase other financial assets. And as such financial instruments grow in volume and value, they are in effect increasing the overall liquidity within the system. Such credit financing is especially appropriate for investing in financial instruments. As the value of financial instruments rises (which presumes a continued rise in their price), it enables investing in still more similar financial instruments. The process would not be possible without the development of ‘securitization’ and highly liquid secondary markets for speculative financial instruments. In a sense, therefore, securitization and secondary markets create liquidity for financing still additional speculative investing.
A couple additional concrete examples: credit default swaps (CDS) derivatives and ‘naked short selling’. With CDS an investor may speculate that a company will default, so he ‘buys’an insurance contract (a CDS) to protect against that failure. But the speculator does not actually ‘buy’ in the sense of putting real dollars up to purchase the CDS contract. At most, he may put up a very small share of the actual cost of the CDS and leverage the rest—i.e. owe it as debt. All derivatives financial securities are in a similar way ‘leveraged’. That is, credit (and debt) far beyond what is invested in real money is extended to the borrower. Credit, and corresponding debt, is created independently of bank reserves and Fed efforts to manage levels of bank reserves.
The case of what is called ‘naked short selling’ of stocks by speculators is even more blatant. Short selling has been around for some time. It is associated with stock selling. Professional stock traders borrow to buy stock at its current price with the expectation of selling it later once the price declines and pocketing the difference as pure speculative profits. The borrowing incurs a short term debt for which an interest charge or fee must be paid. The borrowing also creates downward pressure on the stock price in question.
‘Naked’ short selling takes the speculative practice one step further. ‘Naked’ means traders don’t even borrow the funds in order to buy. Naked short selling amounts to buying stock without putting a penny down—i.e. 100% leveraging. Naked short sales amount to selling something you never owned. In other words, it’s another extreme form of speculation, more like pure ‘betting’ or like ‘betting’ when purchasing credit default swaps than buying and selling of a stock per se. Naked short selling results in even greater downward pressure on a stock’s price. Naked short sellers played a major role in the collapse of Bear Stearns, Fannie Mae, and Lehman brothers in the intensifying financial crisis during 2008, as speculators turned increasingly toward ‘naked’ short selling.
Naked short selling has the eventual result of causing a rise in corporate debt for those companies targeted by the short sellers. To the extent short selling drives down stock prices it makes it increasingly difficult for corporations to raise capital by means of stock issuance. That forces them to borrow and increase their debt, or to forego real investment activity altogether, which often means a reduction in real investment and jobs. As the recent financial crisis spread globally, the practice of short selling was banned or severely restricted in many places in Asia, Australia, Europe—but not in the U.S. Naked short selling might also be considered a form of ‘financial cannibalism’, in that investors in shadow banks prey upon investors in real asset institutions like non-financial companies.
As shadow banks, hedge funds and their investors have been particular active in naked short selling during the recent financial crisis. According to the premier market research source tracking the hedge fund industry, Hedge Fund Research, hedge funds involved in short selling (including the increasing practice of naked selling) accounted for about 40% of the $3 trillion in global hedge fund assets in 2007-08.
Investing in CDSs and naked short selling represent ‘investment as betting’ and thus an extreme form of speculative investing. But they would not be possible without the new forms of liquidity creation with which they are financed. These new forms of speculative investing typically often result as well in an increase in debt levels for companies with real assets and therefore negative affect levels of real asset investment in those companies. On the other hand, profits and returns to speculators are often significant. Driven by asset price inflation, speculative profits are often several magnitudes greater than profits from investment in real assets, so long as prices continue to rise. Speculative profits also have the added enticement that they can be realized in a much shorter time period. That capital-profit turnover time makes such investments further attractive. And so long as the price of the asset continues to rise, the expectation of profitability is more certain compared, say, to investing in real assets and real products for which demand may or may not materialize at all. Despite the frequency of financial crises in the past twenty years, it appears that profits from speculative investing have grown significantly faster than from real asset investing. For every speculator who waits too long to exit a bubble, and thus loses capital, there are on net more that gain from the run-up and price bubble. That net growth in profits and wealth in turn adds to the ‘global savings glut’ and global pool of liquidity available for subsequent investing.
Financial deregulation has increased the rate and geographic spread of speculative investing. It opened up and accelerated global capital flows. It permitted and stimulated the growth of shadow banking-financial intermediaries as the prime distribution channels for speculative investing and allowed the regulated banking system to play in those same channels and markets. But it did not create the fundamental requirement for speculative investing. That fundamental requirement was the explosion of liquidity. Without that liquidity, and the new forms of leveraging that accompanied it, there would be nothing to speculate with. The new forms of leveraging that expanded it, the new financial instruments that productized it, the new forms of institutions that distributed it, and the new markets in which those financial instruments were sold—are all predicated on the creation of a massive global pool of excess liquidity.
To sum up, there exists today a massive global pool of liquid and near liquid money capital that must find an investment outlet. Estimated roughly in the range of $20 to $40 trillion worldwide, it is thus so excessively large that it cannot find sufficient real, fixed investment opportunities to absorb all of it. There is far more liquidity than real physical asset investment opportunities—notwithstanding the infrastructure growth in China, India, Brazil and the like. More critically, real asset investment may not be as profitable as speculative investing in any event. Meanwhile, that liquidity pool cannot and will not remain idle. It is therefore prone to seek out new price driven speculative opportunities, which are more easily and quickly exploited, with faster turnover and often with greater returns, than physical asset investment in structures, equipment, inventories and such.
The Global Money Parade
The flooding of both the U.S. and global economy with U.S. dollars, the global savings glut, plus new forms of credit creation have produced a historic growth in available liquidity in the global economy. The volume of liquidity is only part of the story, however. Where that liquidity resides and to what uses it is being put are equally important. In what institutions is that liquidity ‘deposited’? In what asset types is it invested? Who are the investors—institutional, corporate, and wealthy individual?
How much of the estimated $20 to $40 trillion in outstanding liquidity today resides in the global network of commercial banks, like J.P Morgan Chase and Bank of America? How much of it in those institutions referred to as ‘shadow banks’ or financial intermediaries—i.e. the investment banks like Goldman Sachs and Morgan Stanley? Giant hedge funds, like Citadel, and the hedge fund sector, which grew from just several hundred in the 1990s to more than 10,000 by 2008 with nearly $2 trillion in assets? Private equity firms like Carlyl or Blackstone that controlled several trillions more at their peak? Finance companies like GMAC and GE Credit? GSEs like Fannie Mae and Freddie Mac? Or in the allegedly more conservative investing institutions like the $4 trillion money market funds, the multi-trillion dollar pension funds, emerging market funds, sovereign wealth funds of the oil rich economies, etc.?
As noted in a previous chapter, for the U.S. alone it is estimated the network of shadow banking institutions by 2007 accounted for more than $10 trillion, about equal to the assets of the commercial banking sector. And the U.S. share of the global shadow banking network is probably no more than 40% at most. Moreover, the commercial banks have over the last decade merged with shadow banks in various ways—at least the largest of the commercial banks. So it makes less and less sense over time to even refer to the distinction of the two banking sectors. Commercial banks have turned increasingly to the higher profitable speculative forms of investing. And they have long funded the shadow banks to significant extent, set up their own hedge funds and private equity firms, established private bank operations for their wealthiest clients, and acted in part like shadow banks in fact if not in name. So part of the big commercial banks must be considered a segment of the shadow banking sector as well, and a significant amount of their lending activity has no doubt been increasingly speculative.
A testimony to that latter point is the huge amount of lending by commercial banks that has occurred since May 2009 to speculators in foreign currency and emerging markets. The banks borrow from the Fed at 0.25% and loan at substantially higher rates to clients speculating in Asian, Latin American, and Russian currencies. Less involved in highly speculative ventures as general rule are the 8200 or so smaller regional and community banks and thrift institutions in the U.S., although to the extent this group has participated in financing subprime mortgages and highly leveraged commercial property deals they too have forayed into speculative investment in major ways. All these represent a short list of institutional ‘loci’ in which much of the world liquidity resides. Add to these institutionals investing on behalf of clients (as well as on behalf of themselves as institutions), very wealthy individuals who invest directly themselves rather than via institutions, and the thousands of corporations that, to some degree, also invest directly with their companies’ retained earnings.
These investors—individual, corporate, and institutional alike—have been shifting their liquidity increasingly in recent decades into speculative investments; that is, investment opportunities of a short term, price-driven asset nature rather than in longer term enterprise, equipment, and structures that payout with a longer, amortized stream of income. That is, investments in financial asset securities. The profits are greater due to the price volatility, the costs are lower since most speculative investing is in financial securities with no costs of production and low cost of sales, there are no potential supplier bottlenecks, distribution is instantaneous and the market size is global, the turnover in profitability is as short as the investor chooses, and the short term risk is less because the assets can be quickly resold in secondary markets most of the time.
These immense relative advantages in costs of speculative investing in financial securities, compared to investing in real physical assets, combined with the possible quick returns and the potential for excess price-driven profits, together result in a kind of ‘global money parade’ that sloshes around markets internationally seeking speculative opportunities—a financial tornado that causes speculative bubbles wherever it touches down.
That parade consists fundamentally of those investors globally that have become greater in number than ever before, controlling a share of total global liquidity that is at historic record levels, and that exhibit a growing preference for speculative investing. And where has most of the liquidity they control been going? Into foreign exchange trading, over the counter derivatives trading, buying and selling of securitized asset backed securities (ABS), collateralized debt (CDOs), collateralized loans (CLOs), residential and commercial mortgages (RMBS, CMBS), credit swaps (CDSs), interest rate and currency swaps, futures and options trades of all kinds, leveraged buyouts (LBOs), emerging market funds, high yield corporate junk bonds and funds, into stock market speculation world wide, into short-selling of stocks, landed property speculation, and global commodities of all kind from food and metals to gold and oil. A global money parade marching to and fro across global financial markets, from one short term speculative opportunity to another, at times exacerbating asset price volatility, at other times precipitating it, and sometimes even pushing asset inflation to the level of financial bust.
An important dynamic characteristic of Epic Recession is that it is typically preceded by a proliferation of multiple asset bubbles fueled by the global money parade that more or less mature in tandem. When one or more of the bubbles overextends and then collapses, it quickly precipitates similar collapses in other bubbles. The magnitude of the financial bust thereafter evokes a credit contraction well beyond that which may occur in a normal recession. How deep, fast and widespread the contraction depends in part on the degree of financial fragility that has developed at the time of the financial bust; and in part on the degree of consumption fragility as well. Both forms of fragility are a function of debt, debt servicing capability, and income. As debt levels unwind in the Epic Recession, the subsequent trajectory of the Epic Recession depends thereafter on the rate of deflation and defaults, and in turn on the ability or failure of government policies to check and contain the deflation-defaults and/or to reduce debt levels that exacerbate the deflation-default levels and rates.
In a number of ways the current 2020 events are increasingly similar to prior ‘great’ recession events. The process is still, of course, in early stage and evolving. But the special, very severe contraction underway as of spring 2020 portends an especially severe form of Great Recession. The Fed and other central banks are desperately trying to head off a financial-banking crash by throwing unprecedented magnitudes of free money at the financial institutions. And now at the non-financial sector as well for the first time historically. Whether this ‘all in’ strategy can succeed in preventing defaults, deep financial asset price deflation, and a system wide credit crash remains to be seen. The process will take months, not weeks, to work itself out. But against the system stabilizing as a result of tens of trillions of dollars of free money is the US and world economies were especially weak on the eve of the virus impact–not strong as some politicians like to argue. Moreover, monetary policy was largely spent stabilizing the 2008-09 crashes, and thereafter in continuing to subsidize capital incomes and profits instead of preparing for the next cycle. Ditto for fiscal policy, that continued to subsidize capital incomes with massive tax cuts for investors and businesses alike–in the US no less than $10 trillion in such tax cuts, to which Trump added another $5 trillion in 2018-19. Budget deficits surged to more than $1 trillion. In short, fiscal policy like monetary policy on the eve of the current crisis was rendered largely ineffective for the coming crisis. The global economy is also decidedly much weaker this time around as well, with a global manufacturing recession the case in 2019 and trade wounded by Trump’s global trade war launched in 2018.
What follows is the excerpt from my 2010 book, ‘Epic Recession’. Its themes were picked up and developed thereafter further in my 2016 book, ‘Systemic Fragility in the Global Economy’ concluding chapter. Further excerpts from the 2010 book will follow this posts; and after that the updates in the 2016 book. So here’s Part 1 on liquidity, its role generating excess debt, and what I called at the time in 2010 the ‘debt-deflation-default nexus’.
CHAPTER THREE:
The Dynamics of Epic Recession
The two preceding chapters addressed static quantitative and qualitative characteristics of Epic Recession. This chapter is concerned with the dynamic characteristics of Epic Recessions—i.e. those characteristics that explain the processes by which Epic Recessions evolve over time.
At the top of the pyramid is the explosion in global liquidity. Liquidity is cash and near-cash forms of liquid assets that can be relatively easily and quickly converted to investment. That investment may take the form of real physical assets, like structures, equipment, inventories of products, etc.; or the form of financial assets, like bonds, commercial paper, stocks, derivatives financial instruments, and so forth. Whichever the form, the point is liquidity is the basis for investment. It is the source for issuing credit and thus debt. The extension of credit becomes the debt of the borrower of that credit. Liquidity enables banks to issue loans, corporations to issue bonds, speculators to purchase derivatives, etc.
There are several major sources responsible for the exploding liquidity in the U.S. and global economy over the last several decades. All have contributed to the growing volume of liquidity, such that today there is now a flood of liquidity awash in the global economy. The unprecedented surge in liquidity is the source of credit and corresponding debt accumulation. And it is that credit and debt acceleration that has fueled and enabled the run-up in speculative investing to historic, record levels in turn.
One source of the global liquidity explosion has been the U.S. central bank, the Federal Reserve. Since the dollar became the de facto global currency in 1944 (and the virtual de jure global currency since 1971 when the last fiction of a gold standard was abandoned), U.S. monetary policies for more than half a century have been injecting trillions of dollars into the U.S. and global economies. That’s trillions of dollars of excess liquidity that has accumulated globally in the hands of investors public and private, corporate and sovereign, individual and institutional.
It represents a record volume between $20 and $40 trillion of investible money capital that cannot lie idle and must find an outlet.
The Fed enables the expansion of credit in the commercial banking system by means of buying government bonds back from the banks, changing their minimum reserve requirements of those banks, or loaning money to individual banks directly through the Fed’s ‘discount window’. Since December 2007 it has added a fourth new ‘tool’ for injecting liquidity into the economy called targeted ‘auctions’ designed to provide massive bailout funding for banks, shadow banks, and even non-financial corporations. By means of these special auctions over the last two years, the Fed has injected or committed to provide between $2 and $11 trillion, depending on which accounting approach one chooses. But Fed actions since December 2007 constitute only the latest of a long string of liquidity pumping actions by the Fed.
When there’s a recession, the Fed injects liquidity. That occurred in response to the normal recessions that happened in 1966, 1970, 1973-75, 1980, 1982, 1990, and 2001. In addition, every time there’s a financial instability event, the Fed injects still more liquidity to offset banks’ anticipated losses to keep them from insolvency and lending. That occurred 1987-1988 in response to the stock market crash of 1987; in 1989-1992 to bail out the savings and loan and junk bond markets; 1997-1998 to rescue the Long Term Capital Management hedge fund and Asian banks and financial institutions with ties to U.S. banks; in 1999 to counter fears about computers coming to a stop with the change in the millennia (a phony mini-panic called the Y2K or ‘year 2000’); 2000-2001 to counter the tech-driven stock market bust, and 2002-2004 to keep the housing market going as the rest of the economy faltered. On occasion the Fed has even injected liquidity to assist Presidents in their election bids or war policies, such as in 1971-72 in the case of Nixon and 2003-04 for George W. Bush.
In contrast to its long term policy of pumping liquidity into the economy, the Fed has done little in the way of successfully retracting that same liquidity after recessions, major financial instability events, or following the accommodation of Presidents’ political demands. The roughly twenty years of Fed ‘net’ liquidity injections into the U.S. economy, from 1986 to 2006 under the chairmanship of Alan Greenspan, has become known as the Greenspan ‘Put’. Since 2007, an even greater net liquidity injection has occurred under its current chairman, Ben Bernanke. It will no doubt eventually become known as the ‘Bernanke Put’—i.e. a far greater amount in a much shorter period of time.
The Fed’s decades-long, pro-liquidity policies not only contributed to a build-up of liquidity within the U.S. economy, but did so throughout the global economy as well. To the extent easier credit from the Fed was accessible to U.S. banks with operations and dealings abroad—which has become the case increasingly since the early 1990s—some of that Fed-provided liquidity to those U.S. banks was undoubtedly diverted offshore. Similarly, loans to non-bank U.S. companies with foreign subsidiaries no doubt resulted in liquidity flowing offshore to those subsidiaries, as well as for those multinational companies’ growing acquisitions of additional offshore assets since 1990. The latter is called Foreign Direct Investment, or FDI, and that too has been fueled by Fed monetary policies’ creating excess liquidity in the system.
Other U.S. government policies have also contributed to the growth of dollar liquidity globally. U.S. government policies providing foreign aid to sovereign countries for decades increased the flow of dollars and liquidity from the U.S. into the global system. So did funding of U.S. military bases and operations around the world. And policies of free trade, that resulted in chronic and rising U.S. trade deficits since the 1980s. Trade deficits have meant net annual outflows of hundreds of billions of dollars every year from the U.S. economy since the 1980s, culminating in more than $700 billion trade deficits for four years running during the mid-2000s alone. A further consequence of U.S. free trade policies has been the expansion of U.S. companies’ foreign direct investment, or FDI, which, as previously noted, have transferred additional billions of dollars offshore. Then there’s the major structural changes that have occurred in the U.S. tax system since 1980 that have permitted wealthy U.S. investors, individual and institutional, to shift decades of money capital from capital gains, dividends and interest income into offshore tax havens to avoid tax payments to the U.S.—in dozens of small or island nations from Cayman Islands to Seychelles to Vanuatu to Switzerland and beyond. All the above developments have combined to enable a flow of trillions of dollars into offshore venues—going into foreign central banks, private banks and financial institutions, offshore hedge and investment funds, personal and corporate accounts in tax havens, etc. Thus, while the Fed has obviously been a major contributor to the steady growth of liquidity in the U.S. and the global economy, it hasn’t been the only source. U.S. government military, trade and tax policies have contributed as well.
In addition to the Fed, and U.S. military spending, trade and tax policies, at least two other major forces have additionally contributed to the historic expansion of liquidity worldwide in recent decades. One is what is sometimes called the ‘global savings glut’.
There are different interpretations of the meaning of the ‘global savings glut’. For former Federal Reserve chairman, Alan Greenspan, the ‘global savings glut’ represents the accumulated reserves held by foreign central banks, private banks, and investors.
It is the global savings glut, as Greenspan defines it, that caused the flood of liquidity into the U.S. between 2002-2005 that drove down mortgage interest rates, which in turn caused the subprime market boom. It wasn’t the Fed lowering short term rates to 1% and keeping them there for nearly two years that caused the speculative boom in residential housing. The housing bubble occurred worldwide, not just in the U.S. It was the excess global liquidity that flooded into the U.S. housing market that was the culprit. The cause therefore was the glut—sometimes referred to as another sanitized term, ‘global imbalances’—that was responsible. The bubble was thus beyond the Fed’s or any central bank’s control. But even if it is true, as Greenspan maintains, that the post-2002 boom occurred simultaneously in many global markets not just the U.S. and the Fed therefore could not have been responsible; even if one were to agree with him that the global savings glut washing back onto U.S. economic shores circa 2002 was the sole cause the U.S. subprime housing bubble—what then explains the origins of that ‘global savings glut’ itself?
First, data is irrefutably clear that the U.S. housing price bubble began in 1997, not in 2002. The speculation in residential housing markets preceded the Fed’s 2002 lowering of rates as well as the alleged 2002-05 foreign investment inflows by at least five years. Both the Fed’s low 1% rates and the simultaneous global liquidity inflows contributed to the subprime housing bubble. But neither was the originating cause. The subprime boom of 2002-2005 was just the culminating phase of the housing bubble. What set off the start of housing speculation and the beginning of the run-up in housing prices around 1997-1998 is the fundamental question Greenspan must answer, but doesn’t. In addition, Greenspan must explain further why the dot.com technology stocks bubble originated around 1997 as well, and why the speculative bubble in Asian currencies that led to the Asian financial meltdown in 1997-1998 (that in turn spread to Russia and Latin American economies, and required the bailout of the big hedge fund, Long Term Capital Management in 1998) occurred as well circa 1997-1998? What was beginning to happen circa 1997-1998 that precipitated all three bubbles? Was it just coincidental that all three speculative bubbles commenced around the same time? Or is there a common thread and origin to all three?
The global savings glut begins with the river of dollars with which the U.S. flooded the world for decades as a direct consequence of its monetary, fiscal, and military policies. But that flow of dollars was only the start—a kind of priming of the global liquidity pump. The ‘global savings glut’ has been equally important factor contributing to the global liquidity explosion. The glut is the product of the past three decades of unprecedented profits, income and wealth accumulation. But it is not faceless ‘savings’ or ‘reserves’, as Greenspan and others call it. Those are misleading terms that function for the purpose of obfuscating a deeper meaning. The ‘glut’ is in fact the accumulation and concentration of income and wealth among certain strata of investors worldwide, taking the form of excess money and credit capital, that is now increasingly seeking out and flowing into speculative investment opportunities globally at an increasing rate. The glut therefore has a face: the rising global ‘investor elite’ of individuals, funds, investing institutions, corporations, banks, shadow banks and central banks.
The income-wealth accumulated by that elite more than three decades now has derived from both real asset and speculative asset investment, but increasingly in recent years from the latter and decreasingly from the former. The real asset investment has concentrated in manufacturing and infrastructure investment in the so-called ‘BRIC’ countries—i.e. Brazil, Russia, India, and especially China—and to a more limited extent in certain industries like energy extraction and commercial building the petro-economies. The rising share of accumulation of income and wealth from speculative investing has come from commodities, oil, gold, metals, currency and stock speculation, futures and options trading, land and commercial properties, funding of mergers and acquisitions, infrastructure bonds, buying and selling in secondary markets, securitized financial assets, credit insurance, and a host of other derivative based financial instruments.
Once again, the ‘glut’ is therefore not really about ‘savings’ or foreign investors’ reserves. That is a misnomer for what is in essence a concentration of income and wealth among a global strata of investors with a unique control of new, as well as old, forms of money capital. The glut represents global income inequality—not between nations but between the investor classes within most nations and their non-investor countrymen. This investor elite of course includes members in the advanced economies of North America, Europe and Japan, just as it does those in Singapore, Hong Kong, Dubai, Soeul, Shanghai, Rio, Bangalore and elsewhere. It is not about third world or ‘emerging markets’ investors. It reflects a global transformation of capital, as well as a restructuring of the various constituent elements of the class in control of that capital.
In addition to the Fed and U.S. military spending, trade and tax policies, and the global savings glut, there is yet a fourth major source of the global liquidity explosion. The policies of the Fed and U.S. government that since 1945 flooded the world economy with dollars, and the policies that since 1980 set in motion the concentration of income on a global scale do not, by themselves, fully account for the explosion of liquidity of recent decades. That record liquidity was also the consequence of the revolution in credit creation that has been unleashed in large part by the shadow banking system.
Normally liquidity is created in the banking system when the central bank of a country injects money into its banking system. That money injection increases the reserves on hand in the banks with which to extend credit to borrowers. As the banks lend the money to customers the money supply increases in the economy. The actual process of credit creation occurs when the private banks actually extend loans—i.e. credit—to borrowers who subsequently make investments. This describes a traditional process by which a central bank (Fed) determines the amount and timing of liquidity injection and credit. But that liquidity creation process has been giving way progressively over recent decades to a different kind of credit creation system that is growing relatively more independent of the central bank and whatever action it may take. Central banks’ injection of money into the banking system may lead to an increase in credit as banks loan out the money to borrowers. But banks’ credit extension is not limited to this process. Banks and shadow banks provide credit, but have been doing so increasingly independent of the money supply and central banks (e.g. Fed) money supply management processes. In other words, credit is becoming unhinged from money.
In the new system of credit, financial instruments themselves are used as the basis of credit extension and thus borrowing and debt. For example, when a financial instrument, like a collateralized debt obligation derivative, is created based on a subprime mortgage, and the market value of that derivative rises, that increased market value is then used as the basis for issuing further credit to purchase yet more financial instruments. Investments are not made based on the central bank increasing or decreasing the reserves banks may have on hand. Loans and credit extension have now little or nothing to do with banks’ existing levels of loanable excess reserves. Because these financial instruments are tradable immediately on secondary markets short term, they are more or less ‘liquid’; that is, can be used like money to purchase other financial assets. And as such financial instruments grow in volume and value, they are in effect increasing the overall liquidity within the system. Such credit financing is especially appropriate for investing in financial instruments. As the value of financial instruments rises (which presumes a continued rise in their price), it enables investing in still more similar financial instruments. The process would not be possible without the development of ‘securitization’ and highly liquid secondary markets for speculative financial instruments. In a sense, therefore, securitization and secondary markets create liquidity for financing still additional speculative investing.
A couple additional concrete examples: credit default swaps (CDS) derivatives and ‘naked short selling’. With CDS an investor may speculate that a company will default, so he ‘buys’an insurance contract (a CDS) to protect against that failure. But the speculator does not actually ‘buy’ in the sense of putting real dollars up to purchase the CDS contract. At most, he may put up a very small share of the actual cost of the CDS and leverage the rest—i.e. owe it as debt. All derivatives financial securities are in a similar way ‘leveraged’. That is, credit (and debt) far beyond what is invested in real money is extended to the borrower. Credit, and corresponding debt, is created independently of bank reserves and Fed efforts to manage levels of bank reserves.
The case of what is called ‘naked short selling’ of stocks by speculators is even more blatant. Short selling has been around for some time. It is associated with stock selling. Professional stock traders borrow to buy stock at its current price with the expectation of selling it later once the price declines and pocketing the difference as pure speculative profits. The borrowing incurs a short term debt for which an interest charge or fee must be paid. The borrowing also creates downward pressure on the stock price in question.
‘Naked’ short selling takes the speculative practice one step further. ‘Naked’ means traders don’t even borrow the funds in order to buy. Naked short selling amounts to buying stock without putting a penny down—i.e. 100% leveraging. Naked short sales amount to selling something you never owned. In other words, it’s another extreme form of speculation, more like pure ‘betting’ or like ‘betting’ when purchasing credit default swaps than buying and selling of a stock per se. Naked short selling results in even greater downward pressure on a stock’s price. Naked short sellers played a major role in the collapse of Bear Stearns, Fannie Mae, and Lehman brothers in the intensifying financial crisis during 2008, as speculators turned increasingly toward ‘naked’ short selling.
Naked short selling has the eventual result of causing a rise in corporate debt for those companies targeted by the short sellers. To the extent short selling drives down stock prices it makes it increasingly difficult for corporations to raise capital by means of stock issuance. That forces them to borrow and increase their debt, or to forego real investment activity altogether, which often means a reduction in real investment and jobs. As the recent financial crisis spread globally, the practice of short selling was banned or severely restricted in many places in Asia, Australia, Europe—but not in the U.S. Naked short selling might also be considered a form of ‘financial cannibalism’, in that investors in shadow banks prey upon investors in real asset institutions like non-financial companies.
As shadow banks, hedge funds and their investors have been particular active in naked short selling during the recent financial crisis. According to the premier market research source tracking the hedge fund industry, Hedge Fund Research, hedge funds involved in short selling (including the increasing practice of naked selling) accounted for about 40% of the $3 trillion in global hedge fund assets in 2007-08.
Investing in CDSs and naked short selling represent ‘investment as betting’ and thus an extreme form of speculative investing. But they would not be possible without the new forms of liquidity creation with which they are financed. These new forms of speculative investing typically often result as well in an increase in debt levels for companies with real assets and therefore negative affect levels of real asset investment in those companies. On the other hand, profits and returns to speculators are often significant. Driven by asset price inflation, speculative profits are often several magnitudes greater than profits from investment in real assets, so long as prices continue to rise. Speculative profits also have the added enticement that they can be realized in a much shorter time period. That capital-profit turnover time makes such investments further attractive. And so long as the price of the asset continues to rise, the expectation of profitability is more certain compared, say, to investing in real assets and real products for which demand may or may not materialize at all. Despite the frequency of financial crises in the past twenty years, it appears that profits from speculative investing have grown significantly faster than from real asset investing. For every speculator who waits too long to exit a bubble, and thus loses capital, there are on net more that gain from the run-up and price bubble. That net growth in profits and wealth in turn adds to the ‘global savings glut’ and global pool of liquidity available for subsequent investing.
Financial deregulation has increased the rate and geographic spread of speculative investing. It opened up and accelerated global capital flows. It permitted and stimulated the growth of shadow banking-financial intermediaries as the prime distribution channels for speculative investing and allowed the regulated banking system to play in those same channels and markets. But it did not create the fundamental requirement for speculative investing. That fundamental requirement was the explosion of liquidity. Without that liquidity, and the new forms of leveraging that accompanied it, there would be nothing to speculate with. The new forms of leveraging that expanded it, the new financial instruments that productized it, the new forms of institutions that distributed it, and the new markets in which those financial instruments were sold—are all predicated on the creation of a massive global pool of excess liquidity.
To sum up, there exists today a massive global pool of liquid and near liquid money capital that must find an investment outlet. Estimated roughly in the range of $20 to $40 trillion worldwide, it is thus so excessively large that it cannot find sufficient real, fixed investment opportunities to absorb all of it. There is far more liquidity than real physical asset investment opportunities—notwithstanding the infrastructure growth in China, India, Brazil and the like. More critically, real asset investment may not be as profitable as speculative investing in any event. Meanwhile, that liquidity pool cannot and will not remain idle. It is therefore prone to seek out new price driven speculative opportunities, which are more easily and quickly exploited, with faster turnover and often with greater returns, than physical asset investment in structures, equipment, inventories and such.
The Global Money Parade
The flooding of both the U.S. and global economy with U.S. dollars, the global savings glut, plus new forms of credit creation have produced a historic growth in available liquidity in the global economy. The volume of liquidity is only part of the story, however. Where that liquidity resides and to what uses it is being put are equally important. In what institutions is that liquidity ‘deposited’? In what asset types is it invested? Who are the investors—institutional, corporate, and wealthy individual?
How much of the estimated $20 to $40 trillion in outstanding liquidity today resides in the global network of commercial banks, like J.P Morgan Chase and Bank of America? How much of it in those institutions referred to as ‘shadow banks’ or financial intermediaries—i.e. the investment banks like Goldman Sachs and Morgan Stanley? Giant hedge funds, like Citadel, and the hedge fund sector, which grew from just several hundred in the 1990s to more than 10,000 by 2008 with nearly $2 trillion in assets? Private equity firms like Carlyl or Blackstone that controlled several trillions more at their peak? Finance companies like GMAC and GE Credit? GSEs like Fannie Mae and Freddie Mac? Or in the allegedly more conservative investing institutions like the $4 trillion money market funds, the multi-trillion dollar pension funds, emerging market funds, sovereign wealth funds of the oil rich economies, etc.?
As noted in a previous chapter, for the U.S. alone it is estimated the network of shadow banking institutions by 2007 accounted for more than $10 trillion, about equal to the assets of the commercial banking sector. And the U.S. share of the global shadow banking network is probably no more than 40% at most. Moreover, the commercial banks have over the last decade merged with shadow banks in various ways—at least the largest of the commercial banks. So it makes less and less sense over time to even refer to the distinction of the two banking sectors. Commercial banks have turned increasingly to the higher profitable speculative forms of investing. And they have long funded the shadow banks to significant extent, set up their own hedge funds and private equity firms, established private bank operations for their wealthiest clients, and acted in part like shadow banks in fact if not in name. So part of the big commercial banks must be considered a segment of the shadow banking sector as well, and a significant amount of their lending activity has no doubt been increasingly speculative.
A testimony to that latter point is the huge amount of lending by commercial banks that has occurred since May 2009 to speculators in foreign currency and emerging markets. The banks borrow from the Fed at 0.25% and loan at substantially higher rates to clients speculating in Asian, Latin American, and Russian currencies. Less involved in highly speculative ventures as general rule are the 8200 or so smaller regional and community banks and thrift institutions in the U.S., although to the extent this group has participated in financing subprime mortgages and highly leveraged commercial property deals they too have forayed into speculative investment in major ways. All these represent a short list of institutional ‘loci’ in which much of the world liquidity resides. Add to these institutionals investing on behalf of clients (as well as on behalf of themselves as institutions), very wealthy individuals who invest directly themselves rather than via institutions, and the thousands of corporations that, to some degree, also invest directly with their companies’ retained earnings.
These investors—individual, corporate, and institutional alike—have been shifting their liquidity increasingly in recent decades into speculative investments; that is, investment opportunities of a short term, price-driven asset nature rather than in longer term enterprise, equipment, and structures that payout with a longer, amortized stream of income. That is, investments in financial asset securities. The profits are greater due to the price volatility, the costs are lower since most speculative investing is in financial securities with no costs of production and low cost of sales, there are no potential supplier bottlenecks, distribution is instantaneous and the market size is global, the turnover in profitability is as short as the investor chooses, and the short term risk is less because the assets can be quickly resold in secondary markets most of the time.
These immense relative advantages in costs of speculative investing in financial securities, compared to investing in real physical assets, combined with the possible quick returns and the potential for excess price-driven profits, together result in a kind of ‘global money parade’ that sloshes around markets internationally seeking speculative opportunities—a financial tornado that causes speculative bubbles wherever it touches down.
That parade consists fundamentally of those investors globally that have become greater in number than ever before, controlling a share of total global liquidity that is at historic record levels, and that exhibit a growing preference for speculative investing. And where has most of the liquidity they control been going? Into foreign exchange trading, over the counter derivatives trading, buying and selling of securitized asset backed securities (ABS), collateralized debt (CDOs), collateralized loans (CLOs), residential and commercial mortgages (RMBS, CMBS), credit swaps (CDSs), interest rate and currency swaps, futures and options trades of all kinds, leveraged buyouts (LBOs), emerging market funds, high yield corporate junk bonds and funds, into stock market speculation world wide, into short-selling of stocks, landed property speculation, and global commodities of all kind from food and metals to gold and oil. A global money parade marching to and fro across global financial markets, from one short term speculative opportunity to another, at times exacerbating asset price volatility, at other times precipitating it, and sometimes even pushing asset inflation to the level of financial bust.
An important dynamic characteristic of Epic Recession is that it is typically preceded by a proliferation of multiple asset bubbles fueled by the global money parade that more or less mature in tandem. When one or more of the bubbles overextends and then collapses, it quickly precipitates similar collapses in other bubbles. The magnitude of the financial bust thereafter evokes a credit contraction well beyond that which may occur in a normal recession. How deep, fast and widespread the contraction depends in part on the degree of financial fragility that has developed at the time of the financial bust; and in part on the degree of consumption fragility as well. Both forms of fragility are a function of debt, debt servicing capability, and income. As debt levels unwind in the Epic Recession, the subsequent trajectory of the Epic Recession depends thereafter on the rate of deflation and defaults, and in turn on the ability or failure of government policies to check and contain the deflation-defaults and/or to reduce debt levels that exacerbate the deflation-default levels and rates.
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In just the past four weeks the US Congress and the Federal Reserve Bank (Fed) have introduced an array of of 3 Legislative Acts (Congress) and multiple Lending Programs (Fed) in response to the deepening economic recession. What are these programs in detail? How are the Congress-Fed programs inter-related? Which address the income needs of the real economy and which that of businesses and the banks. Who’s getting how much bailout from where? Will it be enough to prevent a further downturn of the economy? Will it be sufficient to generate a ‘V-Shape’ snap back recovery in the second half of this year–or is the economy now so wounded that a dynamic has set in that means whatever the outcome in controlling the virus, the US (and global) economy will continue to contract? And what, not least, is the likelihood that a financial-banking crash might eventually occur, thus making the recession even worse? Perhaps even paralleling the 1930s?
Listen to my Friday, April 10, Alternative Visions, radio show where I address and discuss these various questions.
GO TO:
http://alternativevisions.podbean.com
Listen to my Friday, April 10, Alternative Visions, radio show where I address and discuss these various questions.
GO TO:
http://alternativevisions.podbean.com
-
SHOW ANNOUNCEMENT
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Listen to my 17 min. interview today on the US economy’s latest layoffs, now totaling well over 20m. And why the US economic crisis is taking on more characteristics similar to the great depression of the 1930s, and well worse already than the 2008-09 great recession. What’s happening in China, emerging markets and world trade. Why there’s no V-shape recovery going to happen. Why the virus only precipitated and accelerated the current crisis, not caused it. And even if the health crisis is resolved, economic dynamics will continue to contract the economy.
How Neoliberal policies created the financialization and globalization of the global economy and in turn has led to increasing, deeper, and global economic crises and financial instability. The new nature of 21st century capitalism.
TO LISTEN GO TO:
https://www.spreaker.com/user/radiosputnik/as-17-million-lose-job-in-3-weeks-a-new-
How Neoliberal policies created the financialization and globalization of the global economy and in turn has led to increasing, deeper, and global economic crises and financial instability. The new nature of 21st century capitalism.
TO LISTEN GO TO:
https://www.spreaker.com/user/radiosputnik/as-17-million-lose-job-in-3-weeks-a-new-
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by Dr. Jack Rasmus
April 3, 2020
Listen to my take on today’s Jobs Numbers with a loss of 701,000 jobs–even before the loss of 10 million more in the last two weeks of March are counted. In the second half of the show the discussion is why a recovery from the current deep ‘Great Recession 2.0’ will not be V-shaped, i.e. won’t ‘snap back’ later this summer. What are the economic reasons and why media talking heads, politicians, and much of mainstream professional economists like Robert Reich, Larry Summers, and others are wrong.
TO LISTEN TO THE SHOW GO TO:
http://alternativevisions.podbean.com
.
Dr. Rasmus explains why a V-shape recovery from the current crisis will not happen, despite all the marketing spin by Trump, politicians and myopic economists. The show today addresses first the employment numbers reported by the Labor Dept. Rasmus explains those numbers don’t include the last two weeks of March and the 10m workers filing for unemployment benefits. The official unemployment rate of 4.4% reported is thus a gross understatement (and also useless since it always states job losses for only full time employed). Why aren’t those still working being rewarded for hazard work is the next theme of the show, based on Dr. Rasmus’ recently published ‘Covid-19 and the Forgotten Working Class’. The last half hour addresses the theme why a V shape recovery is not going to happen. Rasmus explains why uncertainty and negative expectations by business and households alike will mean more cash hoarding, savings instead of consumption, debt pay down, slow recovery of bank lending, decline in business and household demand for credit, global trade collapse, and business cost cutting carried forward—all mean a slow and tenuous recovery of business investment and consumer spending. Two additional ‘wildcards’ that could depress recovery still further as well might be politicians returning to austerity in 2021 to offset the massive deficits ($6.7T) and $30T (from $22T) national debt + the Fed’s possible failure to prevent a financial crash in coming months. (Check out Dr. Rasmus’ blog posts on the economy today at jackrasmus.com).
April 3, 2020
Listen to my take on today’s Jobs Numbers with a loss of 701,000 jobs–even before the loss of 10 million more in the last two weeks of March are counted. In the second half of the show the discussion is why a recovery from the current deep ‘Great Recession 2.0’ will not be V-shaped, i.e. won’t ‘snap back’ later this summer. What are the economic reasons and why media talking heads, politicians, and much of mainstream professional economists like Robert Reich, Larry Summers, and others are wrong.
TO LISTEN TO THE SHOW GO TO:
http://alternativevisions.podbean.com
-
SHOW ANOUNCEMENT
.
Dr. Rasmus explains why a V-shape recovery from the current crisis will not happen, despite all the marketing spin by Trump, politicians and myopic economists. The show today addresses first the employment numbers reported by the Labor Dept. Rasmus explains those numbers don’t include the last two weeks of March and the 10m workers filing for unemployment benefits. The official unemployment rate of 4.4% reported is thus a gross understatement (and also useless since it always states job losses for only full time employed). Why aren’t those still working being rewarded for hazard work is the next theme of the show, based on Dr. Rasmus’ recently published ‘Covid-19 and the Forgotten Working Class’. The last half hour addresses the theme why a V shape recovery is not going to happen. Rasmus explains why uncertainty and negative expectations by business and households alike will mean more cash hoarding, savings instead of consumption, debt pay down, slow recovery of bank lending, decline in business and household demand for credit, global trade collapse, and business cost cutting carried forward—all mean a slow and tenuous recovery of business investment and consumer spending. Two additional ‘wildcards’ that could depress recovery still further as well might be politicians returning to austerity in 2021 to offset the massive deficits ($6.7T) and $30T (from $22T) national debt + the Fed’s possible failure to prevent a financial crash in coming months. (Check out Dr. Rasmus’ blog posts on the economy today at jackrasmus.com).
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We hear a lot these days about providing benefits and income for the tens of millions of workers who are being laid off, required to ‘stay in place’ by government orders, or out of necessity have to stay home with young children now that schools have shut down. The recent passed CARES ACT provides some minimal and basic income and unemployment benefits for those without work.
But what about the working class that is still at work? Why are they being asked to sacrifice and get nothing in return but words of praise from politicians and media talking heads?
I’m talking about those workers who are required to continue essential work just in order to keep what’s left of the economy going. Those whose work keeps our increasing tenuous social system from flying apart.
I’m talking about workers who are making sure essential utility services aren’t cut off. Who are ensuring that food is available and delivered to stores and homes. Who continue to pick up our garbage in order to prevent a further health crisis. Who keep the pharmacies open so those who need essential medicines can still get them. I’m talking about all those warehouse workers at Amazon and elsewhere filling orders for food and other essentials. The firefighters who still call when emergencies happen. The workers still processing health insurance claims. The subway workers, bus drivers and railroad workers. The truck drivers, local and long haul. Postal workers who keep processing and delivering the mail. The assembly line workers still working their machines that produce the desperately needed PPE. And of course the nurses, technicians, doctors and administrative hospital staff. And let’s not forget the volunteers of all kind, who keep delivering meals to grandma and grandpa, and checking in on them to help with basic physical needs. Forget them at your peril because there are limits to what they can be asked to do.
They are the combat troops at the front line. The rest of us are on leave behind the line and not facing imminent danger.
Politicians keep telling us they are heroes. Yeah, we know that. They’re working in dangerous and hazardous and even life threatening conditions. But simply saying they’re heroes doesn’t cut it. It’s not enough. Words are cheap.
My point is this: Why aren’t we compensating and rewarding these folks too, just as we’re protecting those losing their jobs with expanded unemployment benefits? Why isn’t the ‘still working working class’ being properly rewarded for the hazardous jobs they’re doing, the long hours, the unhealthy working conditions?
We’re giving corporations and businesses trillions of dollars in grants, loans, and free money from the Federal Reserve bank. Why are we short-changing those workers who are the real source of keeping the entire system from collapsing during this crisis, who are keeping the economy—or what’s left of it—still running?
They are holding the entire economy and social system together in this crisis. Why isn’t that properly recognized? And rewarded?
Here’s what the politicians should be doing. Here’s what should be included in Congress’s next spending bill for those occupations who are now keeping the system itself from crashing during this crisis:
• Hazard pay at time and one-half base pay
• Time and one-half for all hours worked beyond 7 hours; double time beyond 10 hours
• Full health care coverage provided under an emergency new ‘Part E’ of Medicare
• 90 day moratorium on apartment rent or home mortgage payment
• Government reimbursement for minimum credit card interest charges for six months
• Government reimbursement for auto loan monthly payments
• Clothing allowance tax credit for costs of cleaning & PPE equipment purchases
There’s an analogy here that’s relevant. It’s a strike. When workers go on strike, any decent union strike fund will pick up their mortgage or rent when it comes due. The strike fund covers the monthly auto payment. It provides for food on the table. Everyone in the union pays into the strike fund during good times, so that those in need during a strike can continue.
Isn’t the country supposed to be a union? Don’t we all pay taxes into the ‘national strike fund’ that is the government budget? Well it’s time to use that budget to cover those in need. And that includes not just the unemployed but the employed as well—i.e. those who are keeping it all together during the crisis.
It’s not just the unemployed who are in need. We should recognize all those still working who are risking their lives for the rest. Who are out there on the front lines, risking their health, working extended hours, often under terrible conditions, worried about their families at home. Managers, professionals, and other occupations may be able to work from home. Or telecommute. Or use videoconferencing to keep their companies afloat as the economy shuts down. But workers who are essential must continue to go out into the world and work, or else the entire economic edifice will come down around all our ears.
So why aren’t we properly rewarding and compensating these folks who are keeping an even greater crisis and social collapse at bay?
Let’s not forget the working class still at work.
Forget them at your peril. Forget them and there’ll come a time, and maybe not too far off, when they just decide ‘the hell with this, it’s not worth it’, and just walk off the job in protest or disgust or just decide to take care of their own instead of all of us. And no nice words by politicians about being ‘heroes’ will bring them back.
Then you’ll see how important workers are to the economy and even to what we call civilization itself!
Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network. Join Dr. Rasmus for daily commentary on developments in the US economy and politics on Twitter at @drjackrasmus.
But what about the working class that is still at work? Why are they being asked to sacrifice and get nothing in return but words of praise from politicians and media talking heads?
I’m talking about those workers who are required to continue essential work just in order to keep what’s left of the economy going. Those whose work keeps our increasing tenuous social system from flying apart.
I’m talking about workers who are making sure essential utility services aren’t cut off. Who are ensuring that food is available and delivered to stores and homes. Who continue to pick up our garbage in order to prevent a further health crisis. Who keep the pharmacies open so those who need essential medicines can still get them. I’m talking about all those warehouse workers at Amazon and elsewhere filling orders for food and other essentials. The firefighters who still call when emergencies happen. The workers still processing health insurance claims. The subway workers, bus drivers and railroad workers. The truck drivers, local and long haul. Postal workers who keep processing and delivering the mail. The assembly line workers still working their machines that produce the desperately needed PPE. And of course the nurses, technicians, doctors and administrative hospital staff. And let’s not forget the volunteers of all kind, who keep delivering meals to grandma and grandpa, and checking in on them to help with basic physical needs. Forget them at your peril because there are limits to what they can be asked to do.
They are the combat troops at the front line. The rest of us are on leave behind the line and not facing imminent danger.
Politicians keep telling us they are heroes. Yeah, we know that. They’re working in dangerous and hazardous and even life threatening conditions. But simply saying they’re heroes doesn’t cut it. It’s not enough. Words are cheap.
My point is this: Why aren’t we compensating and rewarding these folks too, just as we’re protecting those losing their jobs with expanded unemployment benefits? Why isn’t the ‘still working working class’ being properly rewarded for the hazardous jobs they’re doing, the long hours, the unhealthy working conditions?
We’re giving corporations and businesses trillions of dollars in grants, loans, and free money from the Federal Reserve bank. Why are we short-changing those workers who are the real source of keeping the entire system from collapsing during this crisis, who are keeping the economy—or what’s left of it—still running?
They are holding the entire economy and social system together in this crisis. Why isn’t that properly recognized? And rewarded?
Here’s what the politicians should be doing. Here’s what should be included in Congress’s next spending bill for those occupations who are now keeping the system itself from crashing during this crisis:
• Hazard pay at time and one-half base pay
• Time and one-half for all hours worked beyond 7 hours; double time beyond 10 hours
• Full health care coverage provided under an emergency new ‘Part E’ of Medicare
• 90 day moratorium on apartment rent or home mortgage payment
• Government reimbursement for minimum credit card interest charges for six months
• Government reimbursement for auto loan monthly payments
• Clothing allowance tax credit for costs of cleaning & PPE equipment purchases
There’s an analogy here that’s relevant. It’s a strike. When workers go on strike, any decent union strike fund will pick up their mortgage or rent when it comes due. The strike fund covers the monthly auto payment. It provides for food on the table. Everyone in the union pays into the strike fund during good times, so that those in need during a strike can continue.
Isn’t the country supposed to be a union? Don’t we all pay taxes into the ‘national strike fund’ that is the government budget? Well it’s time to use that budget to cover those in need. And that includes not just the unemployed but the employed as well—i.e. those who are keeping it all together during the crisis.
It’s not just the unemployed who are in need. We should recognize all those still working who are risking their lives for the rest. Who are out there on the front lines, risking their health, working extended hours, often under terrible conditions, worried about their families at home. Managers, professionals, and other occupations may be able to work from home. Or telecommute. Or use videoconferencing to keep their companies afloat as the economy shuts down. But workers who are essential must continue to go out into the world and work, or else the entire economic edifice will come down around all our ears.
So why aren’t we properly rewarding and compensating these folks who are keeping an even greater crisis and social collapse at bay?
Let’s not forget the working class still at work.
Forget them at your peril. Forget them and there’ll come a time, and maybe not too far off, when they just decide ‘the hell with this, it’s not worth it’, and just walk off the job in protest or disgust or just decide to take care of their own instead of all of us. And no nice words by politicians about being ‘heroes’ will bring them back.
Then you’ll see how important workers are to the economy and even to what we call civilization itself!
Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network. Join Dr. Rasmus for daily commentary on developments in the US economy and politics on Twitter at @drjackrasmus.
Posted in Uncategorized | 3 Comments »
Jack Rasmus,
copyright 2020
Listening to Trump’s daily press conference, one gets injected with a healthy dose of how market based solutions are already saving us from the virus.
On a daily basis, Trump tells us what a fantastic job he’s doing, then trots out corporate CEOs before the camera, one after another, each telling us what they’re doing: US auto execs tell us of their plans to convert their idled factories and produce millions of ventilators (while states in desperate need are actually buying them from abroad, mostly China). Big Pharma companies are developing the new vaccine or interim medical treatments like hydrocholoroquinine (which Cuba has already produced and is giving free to Italy); silicon valley tech companies announce contributions of hundreds of thousands of N95 masks (from their offshore inventories purchased from Asia and elsewhere no doubt).
But the reality is that the free market and so-called free enterprise system is largely responsible for much of today’s health crisis. It is the ‘market’ that has given us the massive shortages in hospital beds, ventilators, critical personal protection equipment (PPE), and the long lag in developing interim medical treatments—let alone a vaccine.
Here’s just a few notable cases how the market has failed and continues to do so:
Hospital Beds
As others have pointed out, before the Neoliberal market system implanted itself in the USA decades ago with Ronald Reagan (deepening and expanding ever since), there were 1.5 million hospital beds in the country and an extensive non-profit public hospital system. Before 1980 there were 100 million fewer US citizens for those 1.5 million beds. Today there are 100 million more Americans, but only 925,000 hospital beds. We’ve added 100 million but reduced beds by 500,000. The reduction, of course, was all done in the name of ‘market efficiency’ by the for profit hospital chains who bought up and then shut down much of the non-profit public hospital system. Now, as the current health crisis deepens, we’re left setting up cots in auditoriums and college dorms and call them hospitals.
The crisis in hospital beds for virus patients can be traced largely to the program of Bill Clinton in 1994 called ‘managed health care’. That program permitted and incentivized the acquisition of the public hospital system by the for-profit chains who sought to reduce competition so they could raise prices. Under Clinton’s program, the for-profit chains were even exempted from US anti-trust laws that might have prevented the loss of half million hospital beds. Hospitals are one of the few industries totally exempt from anti-trust still today.
Personal Protective Equipment (PPE)
Why is the USA so short on ventilators, masks, safety clothing, even disinfectants? It’s because the market solution was to offshore the production of these critical items to Asia, Latin America, and especially China years ago. It was cheaper to move production offshore (experts call this today relocating the supply chains!). It was cheaper to import back these products to the US economy. Expanding free trade (again under Clinton) then made the cost of importing back to the US even cheaper and thus more profitable still. Offshoring and free trade are but two sides of the same coin. Add a third leg to the economic stool: tax laws were changed to provide tax breaks to corporations that actually offshored the production of PPE.
Fast forward and today we have China producing 115 million N95 and surgical masks A DAY! China’s surplus is so great it is giving ventilators and masks to Italy for free. But is the US saying anything about this in Trump’s press conferences? Has Trump ever admitted the availability of these critical PPE materials, ready for import to the US right now! No. Instead, health care providers, doctors, nurses, technicians, are told to re-use their masks and other equipment since there aren’t enough of them to go around. And we’re told by corporate representatives in Trump’s press conferences the materials are coming. Just be patient.
And then there’s the Hydrochloroquinine interim treatment for those sick with Covid-19. Trump mentioned that. But did he say where it was being already used? Some reports are now appearing that the treatment was successfully developed in Cuba, whose doctors have been sent to Italy to administer it there to the most ill patients. But no mention, however, that that treatment is taking place right now in Italy. You won’t hear that ‘non-market’ solution from market unfriendly Cuba from Trump.
Unemployment Benefits
The USA has one of the most miserly unemployment benefit payment systems among all the advanced economies. It provides barely a third of what’s needed to live on. And in many states not even that. In California, one of the more generous in relative terms, the top benefit is $450/wk. That’s about $1,800 a month. But the median rent in urban areas of California alone is $3,000 or more! In New York and other big cities, even more. And the insufficient benefits are paid for only six months.
But if you’re one of the tens of millions of temp, contract, gig workers you’re not considered an employee for the company you’re working for. You therefore are not eligible for even the insufficient unemployment benefits paid in the US.
That has temporarily changed as the US Congress CARE Act just passed. It now provides unemployment benefits for ‘gig’ and other contract workers, albeit for just four months. But the point is this: It’s not the ‘market’ that is helping the millions of gig and other contract workers with at least some benefits. It’s the government. With the CARES Act the government and taxpayer will now pick up the tab for the unemployment benefits for the millions of contract and gig workers that the ‘market’ has failed to cover. The market has allowed companies to avoid paying any unemployment benefits tax that would otherwise cover contract and gig workers. The taxpayer and government now will ‘pick up the tab’. The market failed and the government-taxpayer must clean up its mess and provide the benefits companies like Uber, Lyft, AirBnB and others have avoided and pocketed for themselves.
<br / Health Insurance
In the free market Nirvana that is the USA today, millions of companies are permitted to forego providing their employees health insurance coverage. 37 million have no insurance at all.> And 87 million are under insured. Millions with some insurance have deductibles of thousands of dollars per person a year.
Now the Cares Act once again, i.e. the government and taxpayer, is stepping in and ensure these millions—employed and unemployed—have some kind of health insurance coverage. The government is called upon to clean up the mess the market has left.
Paid Medical-Sick Leave
The richest country in the world, the USA, where the Fortune 500 largest companies have managed to distribute more than $1 trillion a year for the past nine years to their shareholders in stock buybacks and dividend payouts, only provides on average 6 paid sick leave days a year to employees. And that’s typically only where a union contract exists. Most get unpaid sick leave or none at all. Get sick, go find another job. That’s the ‘market solution’. In Europe and elsewhere, combined paid leave is typically 30 days or more a year. But not in Trump’s market solution America.
Once again, the consequence is that the government-taxpayer in the CARES Act will have to pick up the tab for paid medical leave for the millions who must stay home due to their Employer’s order, or government ‘stay in place’ guidelines, or school districts shutdowns.
Market Solutions for Worker Retraining
It used to be that companies trained their own workers to become more skilled and productive. There was once a very widespread on the job training culture in the USA. That disappeared as well with the deepening of Neoliberalism and globalization (aka free trade, offshoring, and foreign direct investment by US multinational corps). Under Bill Clinton, corporations were allowed to bring hundreds of thousands of skilled workers from their foreign operations back to the US to take some of the best US jobs. It still continues. Free market efficiency meant it was cheaper (and more profitable) just to transfer workers on H1-B and L-1/2 visas to the US. No need to train American citizens. Cheaper simply to import skilled labor. That was the ‘market solution’ to job training.
The CARES ACT: $500 Billion ‘Socialism for Corporations’
The CARES Act allocates $500 billion just to large corporations. (Another $367 billion to smaller businesses). But do the large corporations really need the $500 billion? And who will oversee the distribution of that largesse?
Take the Airlines. Do they need it for the next 60 days? Do they deserve it?
The airlines are getting $58 billion under the just passed Cares Act. Half of that in outright grants. No strings attached. Another half in loans. Reportedly, they’re now quickly taking the grants but not the loans. Why? They’re probably waiting for Congress to agree to convert the loans to outright grants later in the year.
But no one is asking how much cash on hand the airline companies have as they’re handed these tens of billions of $! And no one is mentioning that the same airline companies in recent years gave their shareholders and CEOs no less than $45 billion in stock buybacks and dividend payouts. So now they’re getting $58B to back fill the hole of $45 billion they gave away to themselves and their big investors (who together owned most of the $45B stock bought back).
Here’s another question unanswered: In recent years big corporations (Fortune 500) earned record profits and paid out more than $1T a year in buybacks and dividends. Under Trump, they’ve paid out a total of more than $3 trillion in buybacks+dividends. In addition to that, in the months immediately leading up to the March 2020 virus crisis, the same big corporations were drawing down hundreds of billions of dollars from their credit lines with banks. At the same time in recent months they have been issuing new bonds and raising billions more in cash. No less than $73 billion was raised from issuing new bonds in February, a record. Flush with mountains of cash from Trump 2018 tax cuts, from their bank credit lines, and from record corporate bond issuance, they now are being given $500 billion more by Congress in the CARES ACT. Do they really need it? Let’s open their books and see before they get even $1.
Not least, there’s the question of who will oversee who gets the $500 billion. The Democrats in Congress say the special board created must oversee. Trump in turn has said, no way. I’m personally going to oversee. Want to guess who’ll win that one?
The point is Big Corporations are loaded with cash. And they didn’t earn most of it from the ‘market’. They got it from Trump tax cuts, from bank credit lines, and from low interest corporate bond issuance made possible by convenient near zero interest loans from the Federal Reserve. Nevertheless, now the non-market sugar daddy, the US government, is giving them $500 more whether they need it or not!
Super-Socialism for Bankers & Investors
The $500 billion going to big business pales in comparison, however, to the multi-trillions that the central bank, the Federal Reserve, is now pouring into the bankers, shadow bankers (i.e. hedge funds, equity firms, investment banks, mutual funds, etc.), and even now into non-bank corporations for the first time as well.
In 2008 the Federal Reserve provided more than $4 trillion to bail out the banks. Now it is providing more than $6 trillion (thus far)—and this time the banks haven’t even failed yet!
The Fed has opened a free money spigot to investors, bankers, and to big business of all types, and has simply declared ‘come on in and take it’. And if the $6 trillion to date isn’t enough, we’ll provide more.
For the first time ever the Fed is now providing free money not only to bankers, but to credit card companies, mortgage companies, corporate bond holders, and even to investors in derivatives like Exchange Traded Funds, or ETFs. Next it will start buying stocks to prop up those markets. Its cousin central bank, the Bank of Japan, has been doing that for years now.
Subsidizing Capital Incomes by Government Not the Market
Both tax policy and central bank monetary policy are supposed to function as general economy stabilization tools, according to mainstream economists. But today that’s a fiction perpetrated by the corporate media. In recent decades, tax and central bank policy ‘tools’ have become virtual conduits for the subsidization of capital incomes.
They have become the vehicles of Corporate Socialism. The Capitalist State and its government is taking care of its own. The rest of us will be taken care of by ‘the market’, according to Trump.
Dr. Jack Rasmus
March 31, 2020
Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network. Join Dr. Rasmus for daily commentary on developments in the US economy and politics on Twitter at @drjackrasmus.
copyright 2020
Listening to Trump’s daily press conference, one gets injected with a healthy dose of how market based solutions are already saving us from the virus.
On a daily basis, Trump tells us what a fantastic job he’s doing, then trots out corporate CEOs before the camera, one after another, each telling us what they’re doing: US auto execs tell us of their plans to convert their idled factories and produce millions of ventilators (while states in desperate need are actually buying them from abroad, mostly China). Big Pharma companies are developing the new vaccine or interim medical treatments like hydrocholoroquinine (which Cuba has already produced and is giving free to Italy); silicon valley tech companies announce contributions of hundreds of thousands of N95 masks (from their offshore inventories purchased from Asia and elsewhere no doubt).
But the reality is that the free market and so-called free enterprise system is largely responsible for much of today’s health crisis. It is the ‘market’ that has given us the massive shortages in hospital beds, ventilators, critical personal protection equipment (PPE), and the long lag in developing interim medical treatments—let alone a vaccine.
Here’s just a few notable cases how the market has failed and continues to do so:
Hospital Beds
As others have pointed out, before the Neoliberal market system implanted itself in the USA decades ago with Ronald Reagan (deepening and expanding ever since), there were 1.5 million hospital beds in the country and an extensive non-profit public hospital system. Before 1980 there were 100 million fewer US citizens for those 1.5 million beds. Today there are 100 million more Americans, but only 925,000 hospital beds. We’ve added 100 million but reduced beds by 500,000. The reduction, of course, was all done in the name of ‘market efficiency’ by the for profit hospital chains who bought up and then shut down much of the non-profit public hospital system. Now, as the current health crisis deepens, we’re left setting up cots in auditoriums and college dorms and call them hospitals.
The crisis in hospital beds for virus patients can be traced largely to the program of Bill Clinton in 1994 called ‘managed health care’. That program permitted and incentivized the acquisition of the public hospital system by the for-profit chains who sought to reduce competition so they could raise prices. Under Clinton’s program, the for-profit chains were even exempted from US anti-trust laws that might have prevented the loss of half million hospital beds. Hospitals are one of the few industries totally exempt from anti-trust still today.
Personal Protective Equipment (PPE)
Why is the USA so short on ventilators, masks, safety clothing, even disinfectants? It’s because the market solution was to offshore the production of these critical items to Asia, Latin America, and especially China years ago. It was cheaper to move production offshore (experts call this today relocating the supply chains!). It was cheaper to import back these products to the US economy. Expanding free trade (again under Clinton) then made the cost of importing back to the US even cheaper and thus more profitable still. Offshoring and free trade are but two sides of the same coin. Add a third leg to the economic stool: tax laws were changed to provide tax breaks to corporations that actually offshored the production of PPE.
Fast forward and today we have China producing 115 million N95 and surgical masks A DAY! China’s surplus is so great it is giving ventilators and masks to Italy for free. But is the US saying anything about this in Trump’s press conferences? Has Trump ever admitted the availability of these critical PPE materials, ready for import to the US right now! No. Instead, health care providers, doctors, nurses, technicians, are told to re-use their masks and other equipment since there aren’t enough of them to go around. And we’re told by corporate representatives in Trump’s press conferences the materials are coming. Just be patient.
And then there’s the Hydrochloroquinine interim treatment for those sick with Covid-19. Trump mentioned that. But did he say where it was being already used? Some reports are now appearing that the treatment was successfully developed in Cuba, whose doctors have been sent to Italy to administer it there to the most ill patients. But no mention, however, that that treatment is taking place right now in Italy. You won’t hear that ‘non-market’ solution from market unfriendly Cuba from Trump.
Unemployment Benefits
The USA has one of the most miserly unemployment benefit payment systems among all the advanced economies. It provides barely a third of what’s needed to live on. And in many states not even that. In California, one of the more generous in relative terms, the top benefit is $450/wk. That’s about $1,800 a month. But the median rent in urban areas of California alone is $3,000 or more! In New York and other big cities, even more. And the insufficient benefits are paid for only six months.
But if you’re one of the tens of millions of temp, contract, gig workers you’re not considered an employee for the company you’re working for. You therefore are not eligible for even the insufficient unemployment benefits paid in the US.
That has temporarily changed as the US Congress CARE Act just passed. It now provides unemployment benefits for ‘gig’ and other contract workers, albeit for just four months. But the point is this: It’s not the ‘market’ that is helping the millions of gig and other contract workers with at least some benefits. It’s the government. With the CARES Act the government and taxpayer will now pick up the tab for the unemployment benefits for the millions of contract and gig workers that the ‘market’ has failed to cover. The market has allowed companies to avoid paying any unemployment benefits tax that would otherwise cover contract and gig workers. The taxpayer and government now will ‘pick up the tab’. The market failed and the government-taxpayer must clean up its mess and provide the benefits companies like Uber, Lyft, AirBnB and others have avoided and pocketed for themselves.
<br / Health Insurance
In the free market Nirvana that is the USA today, millions of companies are permitted to forego providing their employees health insurance coverage. 37 million have no insurance at all.> And 87 million are under insured. Millions with some insurance have deductibles of thousands of dollars per person a year.
Now the Cares Act once again, i.e. the government and taxpayer, is stepping in and ensure these millions—employed and unemployed—have some kind of health insurance coverage. The government is called upon to clean up the mess the market has left.
Paid Medical-Sick Leave
The richest country in the world, the USA, where the Fortune 500 largest companies have managed to distribute more than $1 trillion a year for the past nine years to their shareholders in stock buybacks and dividend payouts, only provides on average 6 paid sick leave days a year to employees. And that’s typically only where a union contract exists. Most get unpaid sick leave or none at all. Get sick, go find another job. That’s the ‘market solution’. In Europe and elsewhere, combined paid leave is typically 30 days or more a year. But not in Trump’s market solution America.
Once again, the consequence is that the government-taxpayer in the CARES Act will have to pick up the tab for paid medical leave for the millions who must stay home due to their Employer’s order, or government ‘stay in place’ guidelines, or school districts shutdowns.
Market Solutions for Worker Retraining
It used to be that companies trained their own workers to become more skilled and productive. There was once a very widespread on the job training culture in the USA. That disappeared as well with the deepening of Neoliberalism and globalization (aka free trade, offshoring, and foreign direct investment by US multinational corps). Under Bill Clinton, corporations were allowed to bring hundreds of thousands of skilled workers from their foreign operations back to the US to take some of the best US jobs. It still continues. Free market efficiency meant it was cheaper (and more profitable) just to transfer workers on H1-B and L-1/2 visas to the US. No need to train American citizens. Cheaper simply to import skilled labor. That was the ‘market solution’ to job training.
The CARES ACT: $500 Billion ‘Socialism for Corporations’
The CARES Act allocates $500 billion just to large corporations. (Another $367 billion to smaller businesses). But do the large corporations really need the $500 billion? And who will oversee the distribution of that largesse?
Take the Airlines. Do they need it for the next 60 days? Do they deserve it?
The airlines are getting $58 billion under the just passed Cares Act. Half of that in outright grants. No strings attached. Another half in loans. Reportedly, they’re now quickly taking the grants but not the loans. Why? They’re probably waiting for Congress to agree to convert the loans to outright grants later in the year.
But no one is asking how much cash on hand the airline companies have as they’re handed these tens of billions of $! And no one is mentioning that the same airline companies in recent years gave their shareholders and CEOs no less than $45 billion in stock buybacks and dividend payouts. So now they’re getting $58B to back fill the hole of $45 billion they gave away to themselves and their big investors (who together owned most of the $45B stock bought back).
Here’s another question unanswered: In recent years big corporations (Fortune 500) earned record profits and paid out more than $1T a year in buybacks and dividends. Under Trump, they’ve paid out a total of more than $3 trillion in buybacks+dividends. In addition to that, in the months immediately leading up to the March 2020 virus crisis, the same big corporations were drawing down hundreds of billions of dollars from their credit lines with banks. At the same time in recent months they have been issuing new bonds and raising billions more in cash. No less than $73 billion was raised from issuing new bonds in February, a record. Flush with mountains of cash from Trump 2018 tax cuts, from their bank credit lines, and from record corporate bond issuance, they now are being given $500 billion more by Congress in the CARES ACT. Do they really need it? Let’s open their books and see before they get even $1.
Not least, there’s the question of who will oversee who gets the $500 billion. The Democrats in Congress say the special board created must oversee. Trump in turn has said, no way. I’m personally going to oversee. Want to guess who’ll win that one?
The point is Big Corporations are loaded with cash. And they didn’t earn most of it from the ‘market’. They got it from Trump tax cuts, from bank credit lines, and from low interest corporate bond issuance made possible by convenient near zero interest loans from the Federal Reserve. Nevertheless, now the non-market sugar daddy, the US government, is giving them $500 more whether they need it or not!
Super-Socialism for Bankers & Investors
The $500 billion going to big business pales in comparison, however, to the multi-trillions that the central bank, the Federal Reserve, is now pouring into the bankers, shadow bankers (i.e. hedge funds, equity firms, investment banks, mutual funds, etc.), and even now into non-bank corporations for the first time as well.
In 2008 the Federal Reserve provided more than $4 trillion to bail out the banks. Now it is providing more than $6 trillion (thus far)—and this time the banks haven’t even failed yet!
The Fed has opened a free money spigot to investors, bankers, and to big business of all types, and has simply declared ‘come on in and take it’. And if the $6 trillion to date isn’t enough, we’ll provide more.
For the first time ever the Fed is now providing free money not only to bankers, but to credit card companies, mortgage companies, corporate bond holders, and even to investors in derivatives like Exchange Traded Funds, or ETFs. Next it will start buying stocks to prop up those markets. Its cousin central bank, the Bank of Japan, has been doing that for years now.
Subsidizing Capital Incomes by Government Not the Market
Both tax policy and central bank monetary policy are supposed to function as general economy stabilization tools, according to mainstream economists. But today that’s a fiction perpetrated by the corporate media. In recent decades, tax and central bank policy ‘tools’ have become virtual conduits for the subsidization of capital incomes.
They have become the vehicles of Corporate Socialism. The Capitalist State and its government is taking care of its own. The rest of us will be taken care of by ‘the market’, according to Trump.
Dr. Jack Rasmus
March 31, 2020
Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions on the Progressive Radio Network. Join Dr. Rasmus for daily commentary on developments in the US economy and politics on Twitter at @drjackrasmus.
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The following are my observations on the evolution of the Covid 19 Pandemic, the US Response, the Impacts on the US & Global Economy, the Fed, and Congress’s Stimulus plans, from my twitter posts. (Check out the daily running commentaries as the health and economic crisis deepens through April, at @drjackrasmus)
#USrecession What’s different then (2008) & now (2020)? (Mar 30)
In 2007: real economy booming; financial crash then brings down real economy. In 2020: real econ slowing fast 4Q19(USA), stagnant (EU), recession (Japan); real econ collapses (1Q/2Q20) causing financial shock (& crash next?)
#Banks (Mar 30)
may not be ‘root’ of the problem in this ‘Great Recession 2.0’, but may be the ‘trunk’-espec. shadow banks Capital mkts & Institutional investor. Problems in comm paper, corp bond, repo mkts=shadow banks pulling back & commercial banks not stepping in to provide liquidity.
.
#Coronavirus (Mar 30)
Both S. Korea and US recorded their first cases on Jan. 20. Korea started national mass testing (15k/day) of everyone by Jan. 30. US still has shortage of tests and no such policy. >100,000 US dead will be the legacy of that. So blame Trump, but also Bush & Clinton.
#Coronavirus (Mar 30)
Why is there such shortage of PPE in US? Ask GW Bush whose tax cuts 2001-04 subsidized US manufacturers to move to China after (i.e. after Clinton in 2000 gave China special trading rights–i.e. free trade lite). From Reagan to Trump, US econ policies changed little
#Coronavirus (Mar 30)
Why is there such shortage of US hospital beds? Ask Bill Clinton, whose healthcare legislation provided tax & other incentives to hospitals to reduce hospital beds & who allowed private for-profit-hospitals to buy up public hospitals & avoid anti-trust laws doing it
#Fed (Mar 29)
has committed $3T of its promised $4.5T already. But nada to most unstable sectors: $2.2T junk corp bonds, $1.2T junk leveraged loans, and low rated local government bodies. When defaults here start watch for psychological contagion effects to spread to general credit mkts
#Fed (Mar 29)
QE & excess liquidity 2008-16 fueled asset bubbles >2008. Hiatus 2017-18. Renewed 2019. More Fed liquidity 2020-21 will now fuel even bigger bubbles 2021-30. “The Problem (excess liquidity) becomes the Solution to the Problem” & creates next crisis. Financialization new norm
#Coronavirus (Mar 28)
Ever wonder where Google and Apple got the hundreds of thousands of masks they said they are now donating in the US? Not from their cellars in Cupertino, CA where they are located. Could it be they’re buying them in China? And that guy who owns Virgin Atlantic.
#Coronavirus (Mar 28)
China’s mega entrepreneur, Jack Ma, has offered to donate 1m masks and 500,000 test kits to the US. But no mention of China’s offer to sell masks or Ma’s offer to donate in Trump press conferences.
#Coronavirus (Mar 28)
US health officials say we need 3.5B masks. China now produces 116M A DAY! 12 times more than before the virus. China giving them away to Italy. So why isn’t Trump buying them? What happened to the US-China trade deal?
#healthcare (Mar 26)
What’s going to happen to millions being laid off who had employer provided health insurance?Why not create new Medicare Part E temp plan to sign up when filing for unemployment benefits? Add a surtax to Medicare’s 1.45% & reimburse Employers & workers in tax credits
#jobs (Mar 26)
How does this week’s 3.28 million new unemployment benefit claims compare to last week’s? It was 282,000. And was averaging less than 300,000 per week for past several months. Economists had forecast the increase would be 1m but it’s 3.2m.
#Jobs (Mar 26)
Data today show 3.28 million more workers applying for unemployment benefits this week. That’s just the tip of the iceberg of what’s coming. Federal Reserve governors had forecast 2m more. Meanwhile, Repub. Senators want to cut $600 benefit in Senate bill already agreed on.
#Fiscalstimulus. (Mar 26)
Just started reading the 880p actual Senate bill. $1,027B going to business is not the whole story. Looks like hundreds of billions more in the form of corporate tax cuts as well. Will be reporting on all that here once I finish reading the monster handout doc
#bailout (Mar 25)
In Senate bill Airlines get $58B–half as loans & half as grants, the latter to pay their workers. Reports coming out airlines taking the grants but not the loans. Could they be not that starved of cash? Taxpayers/Govt paying the workers. Call that ‘Airline Socialism’?
#Fiscalstimulus (Mar 25)
What’s holding up the Senate signing off $2T fiscal stimulus bill agreed last night? Repub Senator (Sasse-Neb.) says the $600 unemployment too generous, keeps workers taking new job. In reply, Bernie Sanders says he’ll hold up bill if Sasse won’t approve the $600
#fiscalstimulus (Mar 25)
Trump admin., media, & some economists now downplaying the Senate bill as a ‘stimulus’ bill. Only helps put a floor under current collapse of US econ. Another fiscal stimulus needed after short term effects of Senate $2T. Senate bill only good for 6-8 wks support
#USrecession (Mar 25)
What will be the GDP impact on the US economy? Goldman & Morgan Stanley banks forecast -24% to -30% 2Q20 drop in GDP. IF A V-SHAPE recovery (not likely) a full yr. GDP contraction of -5% to-8%. If not V-shape, worse. Major drag effect to occur. Recovery more U-shape
#USSenate (Mar 25)
Check out my summary of the final agreement on the economic Stimulus passed last night by the Senate. My analysis why it won’t be enough. Go to my blog,
#Fiscalstimulus (Mar 25)
Check out my summary and analysis of the Senate’s final agreement on an economic stimulus bill earlier this morning. Summary is based on latest reports by WashPost and CNN on the Senate document. To read go to m blog,
#Fiscalstimulus (Mar 25)
Check out my preliminary preview of the Senate bill and deal (subject to change when final details released) on my latest blog post at
#fiscalstimulus (Mar 24)
Here’s some details of Senate bill: unemployment insurance increased $600 over base, but for only 4 mos. (Good news: part time/temps/contractlabor covered). $1,200 check to families + $500/child (max # kids and income eligibility cutoff both ?) Stay tuned for more
·
#fiscalstimulus. (Mar 24)
This confirmed in pending Senate bill: After threatening Congress they will fire all their workers if Congress doesn’t agree, Airlines will get $32B CASH GRANT, + another $29B in loans.
#Fed (Mar 23)
what’s its new ‘backstop’ to Main St. just announced? Fed will ‘support’ student, auto, credit card & small business loans–not ‘make’ loans. Means Fed to allow card, student, auto securitized loans made by banks & investors to dump that debt on the Fed, which will buy it.
#stockmarkets (Mar 23)
Global stock mkts rose from $35T in 2009 to $85T in 2019. In Trump’s 3 yrs, from around $70T to $85T, artificially fueled by massive investor tax cuts & cheap rates. That artificial ‘last leg’ now imploding back to $70T. So why is Fed & Congress subsidizing it again
#fiscalstimulus (Mar 23)
Once again on the Dems refusing to vote fpr McConnell’s $500B big corp handout bill: why won’t Dems even vote on today’s procedural vote? Because it takes 60 votes to pass. If they agree now, McConnell then needs only 50 to pass the $500B handout for corp buddies.
#Fed (Mar 23)
announced today it will start buying corp bonds, not just govt Treasuries from investors. Just like Europe & Japan have been doing for years. What’s next? Buy stock ETFs, like Japan? Negative rates like both? Who says the Fed’s mandate isn’t fin. mkts. What a fiction.
#Trump (Mar 23)
reportedly ‘toying’ with a return to work despite virus mounting cost in lives. About to decide “let them go back to work”. Hey Donald, don’t forget Marie Antoinette’s “let them eat cake” famous line. (To be fair to DJT, other Dem politicians, like Cuomo, considering same)
#Fiscalstimulus (Mar 23)
What’s the ruckus about Dems holding up the $500b bill in Senate? It’s p. 391 of bill where it says the government can keep secret for 6 months which corporations get the non-bank bailout $500k free money? (Banks will be bailed out by Fed’s $6.2T printed money)
#USrecession (Mar 23)
Watch for Trump & politicians to move to getting folks to return to work, despite rising infection & death rates. Don’t want to pay the cost ($4T+) stimulus to cover unemployed & shutdowns. (But will get Fed to spend $6T to pre-bail banks, investors & Wall St.)
#Fed (Mar 23)
latest move today to support investors behind credit cards, student, small business loans. Why not support the borrowers (students, households, small businesses) not the lenders? Reduce card rates to 7%; student loans to 1% (10yr Tbond), suspend interest on small bus. loans
#USrecesssion (Mar 23)
As the econ contraction deepens politicians will begin talking about, and finding ways, to get people back to work despite the rising virus caseload and deaths. The econ crisis will take precedence over the health crisis. (NY gov. Cuomo already raising the point)
#financialcrisis (Mar 22)
Corp bond mkts far more important to stability than stocks. Corp bond mkt now shut down. No issues occurring, despite Fed’s $2.2T injections last week. So watch for big Fed bailout of corp bonds this week, esp. junk & BBB investment grade (half of which is junk)
#fiscalstimulus (Mar 22)
Why does McConnell insist on $350B in loans to big corps, when Fed to provide $4T in loans through banks to big corps? Is it because the $350B will be ‘forgiven’ at a later date & in effect become grants? Btw, no deal with Dems tonite. Watch big stock fall Monday
#USrecession (Mar 22)
We are at am economic ‘rubicon’–not for a recession, or even for a great recession. But for a possible cross over from great recession 2.0, now occurring, to a bona fide econ depression. (My prediction in my 2010 book, ‘Epic Recession: Prelude to Global Depression’)
#USGDP (Mar 22)
If you thought Goldman Sachs’ prediction of 2Q20 GDP contracting -14% was shocking, then consider Morgan Stanley tonight predicting -30%. Meanwhile, McConnell blames Pelosi for not agreeing to a bigger bailout of big corps instead of her insistence on unemployment benefits
#Financialcrisis (Mar 22)
Stock futures trading for monday already halted after fallen the max. Fin. mkts in trouble are: repos, muni bonds, commercial paper, mortgage bonds, oil-commodity futures, residential mortgage bonds, forex, corp junk bonds/BBBs. Panicked investor ‘dash for cash’
#Bailout (Mar 22)
Big corps complain Congress’ bailout for them is not cash grants but loans. After they gave their investors, CEOs/Mgrs more than $3T in stock buybacks & dividend under Trump, 2017-19, now they’re broke? Small bus. need cash grants & workers 3/4 pay unemployment benefits.
#fiscalstimulus (Mar 22)
bill in Congress. No deal as of late Sunday. Democrats want more unemployment insurance, more small business support, and states. McConnell & republicans want more for big corps and no unemployment insurance increases.
#Bailouts (Mar 21)
Correct that: Airlines spent $48B on buybacks over 10 prior years; Boeing spent $43B from 2013-1Q2019. Airlines want $58B grant ($50B passengers, $8B cargo). Boeing wants $60B govt loan. (Boeing’s debt already >$40B. Loan would raise to >$100B)
#Bailouts (Mar 21)
Here’s another stat re. piggie airlines: 96% of their total cash flow for 10 years was used for stock buybacks! (i.e. their $43B buyback binge). And now that execs & shareholders spent it on themselves, they want $58B from Congress & us. Watch Trump give it to them!
#Bailouts (Mar 21)
Boeing wants $60B too. Spent $43B on stock buybacks from 2013-2019. Only suspended buybacks when 737max flopped in early 2019
#Bailouts (Mar 21)
Airlines are ‘pigs at the trough’. After giving their execs and shareholders $45B in stock buybacks in recent years, they’re now demanding $58B in ‘cash grants’ + more tax credits from Congress. If don’t get it, threaten mass layoffs by August. Boeing wants another $60B
#Fiscalstimulus (Mar 21)
Oops. Forget my earlier tweet of $2T package from Congress. Latest news: only $1.3T. (The rest due to assumed ‘multiplier’ effect). But ‘multiplier’ will be minimal as consumers stay home & use check to pay debt. (btw, only ‘some’ will get the $1k check from govt)
#Coronavirus (Mar 21)
Big shortage PPE for drs-nurses-hospitals. 2 reasons: 1. US corps offshored production to China (now with surplus, giving to Italy). 2. Trump’s 2018-19 trade war with China reduced inventory. What happens when Drs-Nurses get sick? Can’t replace them like masks, etc.
#Fiscalstimulus (Mar 21)
Rumor that Congress will vote on $2T bailout bill on Monday. That’s half what’s needed to bail out unemployed, small businesses, & local govts. Fed is already pre-bailing out banks with planned $4.5T liquidity to repos, munis, MMFs, Comm.Paper, etc. + QE for bonds
#Trump (Mar 21)
keeps saying he prefers corps stop stock buybacks. What about dividend payouts? (Together both=$1.2T in each of last 2 yrs). Will corps now getting $500B US bailout still be allowed to do buybacks? Trump doesn’t follow up his ‘wish’ with any enforcement proposals
#Trump (Mar 21)
keeps saying he ‘authorizes’ moratorium on foreclosures & evictions. But HUD today says it has no authority to enforce that until Congress passes a law. Trump’s ‘authorization’ just says he supports a law
#USrecession (Mar 20)
For my latest update on the crashing US economy, my critique of Congress forthcoming recovery proposals, and my alternative fiscal recovery program (phases 1 & 2), listen to my Alternative Visions radio show podcast today at
Alternative Visions
#USrecession (Mar 20)
JP Chase forecasts 2Q20 US GDP contraction of -14%. That’s more severe than worst quarter 1932 during the Great Depression when the contraction peaked at -13% GDP. US will have to raise govt spending from 21% to 40% of GDP as 1942 = $4t more on top of present $4.4T
#USrecession (Mar 20)
Goldman Sachs predicts 2 million to be laid off in March. That’s twice as fast as the monthly lay offs during worst months of 2008-09 crisis, and faster than in the aftermath of the 1929 stock crash and 1930-31 banking crashes.
#Trump (Mar 20)
In press conf. today Trump says he’d like to stop corp buybacks if they’re to get $billions US aid. Well, do it Donald! And stop dividend payouts too. How much buybacks+dividends under Trump? $1.2 trillion/year last 2 yrs. Obama also ave. $800B/yr for 6 yrs (Airlines $45B)
#USrecession (Mar 19)
Want to know how the current crisis of 2020 compares with the last, 2008, & both with the 1930s great depression? Read my Sept. 2018 article, “Comparing 1929 with 2008 and the Next” predicting the current crash, which is reproduced on my blog
#Oil (Mar 18)
crude oil now at $25/barrel. That means > $1T in energy junk bonds on way to default. If so, credit crunch contagion to spread across mkts. Fed announces full backstop for money mkt funds. This IS great recession 2.0 (or potentially even worse).
#USrecession (Mar 18)
Trump raises stimulus to $1.3T. Need more than 2X that. (see my ‘Cornavirus Economic War Mobilization’ plan http://jackrasmus.com) Meantime, Fed keeps pumping more liquidity into corps & mkts. No effect. Credit crisis here. Buyers say 45% chance junk bond default
#financialcrisis (Mar 17)
Treasury Secretary Mnuchin today warns that current financial crisis is ‘worse than 2008’. Jobless rate could rise to 20%. Believes Trump’s fiscal package will prevent both. He’s right about first two points, wrong about the third.
#Fed (Mar 17)
opens another money spigot to financial institutions today. To ‘shadow banks'(fin. institutions like mutual funds & brokers that aren’t regulated by Fed). $1 trillion a day now available to Repo mkts (added to $2.2T last wk. Includes ‘commercial paper’ mkt for mutual funds
#USrecession (Mar 17)
Read my call for a ‘Coronavirus Economic War Mobilization Plan’ along the lines of US war mobilization of 1942. Why we are now in an ‘Economic Pearl Harbor 2020’. (This post follows up my two preceding on need for a $2.2T immediate spending program & how to fund it)
#USrecession (Mar 17)
What US needs now is a ‘Coronavirus War Mobilization Budget’! In 1940 Govt spending was 16% of US GDP. By 1942 it was 40%. Since 1947 govt spending has been 20% of GDP. We need 40% now. See my $2.2T proposal “Addendum to Recovery Program’
#Fiscalstimulus (Mar 16)
As Congress debates how much to spend to save Main St.–and the Fed spends $2.2T immediately to pre-emptively bail out banks & investors–the economy crashes. Read my own ‘Economic Recovery Program’ proposal (+addendum on financing it)
#Fiscalstimulus (Mar 16)
Dems Senate propose $750 billion in emergency stimulus. Too little. $2 trillion will be needed (which is what the Fed just gave banks in free money today). Senate’s McConnell is delay and prevent the $750B, let alone more. WHy? US deficit already at $1.4T this yr
#USstocks (Mar 16)
Markets down -30% so far as of today from prior Feb. highs. My prediction: will decline -50% before current crisis is over. Other financial mkts? Global oil prices will fall within 30 days to $25/bb. Junk bond defaults in US oil patch are inevitable, and already begin
#China (Mar 16)
independent business research sources say China’s 1q20 GDP will contract 10%-15%, though it won’t report it as such.
#USrecession (Mar 16)
What’s the difference between a ‘normal’ recession (R) & ‘Great’ recession (GR)? Ans: Financial markets crash that deepens & prolongs R. Between R, GR & Depression(D)? D occurs after series of banking crashes, as in 1930, 1931, 1932, 1933 in USA
#USrecession (Mar 16)
Here’s an especially scary stat about unserviced debt that leads to default, bankruptcies & mass layoffs: the average days of available liquidity for millions of US small businesses is only 27 days! After that, if no sales revenue, default. Mass layoffs coming in May
#Fed (Mar 16)
rate cuts & QE not about stimulating investment; nor about stopping stock collapse. About preventing bus. defaults contagion to banks that then crash in turn. US not just in recession, but on cusp of another great recession with financial crash overlaid on real recession
#DemocratDebate (Mar 15)
Tonight in debate with Sanders, Biden announces his VP will be a woman. In recent days his team negotiating with Warren. Biden adopts Warren’s bankruptcy & college tuition proposals. Warren selling self to highest bidder. Any bets she’ll be his VP choice anyone?
#USrecesssion (Mar 15)
I’m going to venture here a risky prediction: that despite the massive Fed liquidity injection the financial markets won’t respond all that positively. They may read it as ‘the situation is worse than it appears’. Of course, I could be wrong (hopefully). We’ll see.
#Fed (Mar 15)
back to the future! Fed adds another $500B + $200B in QE purchases as well as 0% rate. After last week’s $1.5T repo purchase. Add all that $2.2T to Fed’s already $4T debt balance sheet. Is that October 2008 deja vu? Free money has no effect in across-the-board “Dash to Cash”
#FED (Mar 15)
just announced rate cut to 0%. Watch for more massive QE & QE lite & term auctions. Fed back to 2008 crisis mode. Question: will this placate or worry markets even more tomorrow? Other news: Calif issues order everyone >64 must self quarantine now. Entire state locking down?
#USrecession (Mar 15)
Minimalist measures being proposed by Trump & Dems to check deep threat of virus to US economy. No major fiscal stimulus program beside Fed & more tax cuts, which won’t work. Read my ‘An Economic Recovery Program: Theirs vs. Mine’ at my blog,
#Fed (mar 14)
watch Fed before mtg to announce a ‘term auction facility’ for shadow bank system, esp. mutual funds and commercial paper. Looks like parts of the banking system are already near freezing up but no one is saying it publicly. Fed action adds to its $1.5T for Repo mkt already
#Fed (Mar 14)
Trump raises again today his right to fire Fed chair, Powell. Wants negative rates like EU & Japan (now in recession; so much for negative rates). Powell capitulated to Trump a year ago & lowered rates; now will move to 0 & QE fast. Won’t matter. Trump looking for scapegoats
#USrecession (Mar 14)
Consumers (66% econ) all that held up US econ 4Q19. Now collapsing. How bad: not just empty store shelves. Now online delivery system being overwhelmed. What will families with babes & young children do? Trump-Pelosi only agree on testing. No econ stimulus yet.
#USrecession (Mar 14)
Replying to ‘economic denialists’ on this blog: $1.5T repo injection ‘not a stimulus’; so bank loans don’t boost economy? Must be ‘paid back fast’; so 1 & 3 mos. repo terms won’t be rolled over? ‘No hoarding’ going on; so corp credit line drawdowns for stock buying?
#Fed (Mar 14)
Next moves this week (after $60B/mo. & $1.5T repo injections already): talk of 1% rate cut (back to 2008 levels of 0.25%) + ‘term auctions’ (a la 2008) QE4. Will Fed go ‘all out’? Or wait to April? Former, if mkts tank again (and they will). It’s a (great?) recession stupid!
#Junkbonds (Mar 13)
Energy junk bond analyst (interviewed on Bloomberg) predicts 30%-40% of junk-laden US oil fracking corps could default this year, should oil prices remain at $30/bb or less for 3-4 more months. (Watch junk heavy retail & travel corps follow as well before year end)
#Coronavirus (Mar 13)
Why first test kits were worthless: they tested for antibodies, not virus itself. New kits test for virus direct. Expect big run up in cases. Viruses are RNA proteins, that take over DNA in our cells. They’re insidious little bastards. And they change (mutate) often
#TreasuryBonds (Mar 13)
liquidity problems in the Repos. Why. Hedge funds took over much of role of banks as intermediaries in repos. Are hedgies now requiring more cash to cover positions elsewhere? Or banks needing more liquidity to service clients’ drawing down credit lines? Or other?
#TreasuryBonds Mar 12)
Why did T-bond rates rise this week, despite stocks collapse? What’s up? Hedge funds in the Repo mkt speculating with Treasuries leveraging bets on interest futures trades, the latter now unwinding due to their losses. Is Fed’s $1.5T repo injection to cover losses?
#stockmarket (Mar 12)
How much did the record 11 yr. stock market bubble create for investors (from Mar 6, 2009 to Feb. 19, 2020)? more than 500%.
#China (Mar 12)
& emerging markets. What’s going on there? Devaluing currencies and dollarized local bonds imploding. Think Argentina & Brazil in trouble now? Just wait. Collapsing currencies & trade means no import purchases. And then there’s China ….
#Creditcrisis (Mar 12)
Accompanying the panic rush to liquidity (i.e. sell off all other assets & hold cash), aka liquidity preference (Keynes) is the related ‘liquidity trap’–i.e. providing more liquidity results in just hoarding it, rather than investing or spending (households) it
#Creditcrisis (Mar 12)
Business media reports (Bloomberg) that the Fed has injected now $5 trillion of liquidity into markets to try to prevent liquidity crisis. The ghost of Keynes (liquidity preference over all other assets) now stalks the corridors of Corporate America everywhere!
#Gold (Mar 12)
Gold prices fall instead of rise. Reason? Same as for ‘safe havens’ like US Treasuries. Investors’ panic flight to hold cash. As Keynes would say: liquidity preference is trumping (no pun intended) demand to hold all other forms of non-cash assets, including the ‘safest’.
#USTreasuryBonds (Mar 12)
The $16T market for US Treasuries acting strange. US stocks fall 2,200 pts & Treasury rates rise (and prices fall). Not vice-versa. Reason: Flight to hold cash everywhere means investors cashing in T’s after big gains=excess supply & price decline & T rates rise.
#Coronavirus (Mar 12)
Head of Harvard Health School today on PBS estimates 40,000 US infected within 2 weeks. 10,000 right now. US worse response of advanced economies. Big problem with testing.
#Repos (Mar 12)
Trump said last night “it’s not a financial crisis”. Why then has Fed announced today a $500B injection into 1 mo. repos + another $500B 3 mo. repos? Reason for $1T ‘QE by another name’: corps drawing down bank credit lines at record levels to hoard cash as revenues crash
#Junkbonds (Mar 12)
The high yield (junk) corporate credit default swaps (CDS) index escalates to 10 year high now in just few days to insure against junk bond defaults (energy, retail, other). Watch for contagion to spread to BBB corporate bonds. But Trump said “not a financial crisis”
#Junkbonds (Mar 12)
For all you finance guys/gals out there: will oil patch high yield(junk) corporate bonds+Junk ETFs(2020 crash)become new subprime mortgage+CDS(2008 crash)? Or will it be oil futures? Repos? India banks? Italy’s? Japan’s central bank ETF losses? Black swans are flocking
#Trump (Mar 11)
bragged about the millions of test kits on the way. Calif. Governor Gavin Newsom said today the test kits California got came without the ‘reagent’. So can’t be used. It’s like sending a printer without the ink and saying write me a report Gavin about how well it’s going
#Repos (Mar 11)
Fed worried re. liquidity, increases one day Repo injection to $175B. (Meanwhile, Trump walks back some of his speech errors in a tweet, saying the freeze on travel from Europe to the US does not include cargo & freight. (It doesn’t have to go through London to get to US)
#Trump (Mar 11)
what do US markets think of Trump’s speech and travel ban? Dow futures down 1124 pts so far. Another -8% one day drop coming maybe?
#Trump (Mar 11)
says on Tv that “testing is expanding rapidly”. But Grand Princess incubator boat in Calif. testing only those with symptoms. Most of 2500 without symptoms told to go home. Not enough tests. (Compare: China tested 200K per day; S. Korea 15K/day. US so far 5k in past 4wks)
#Creditcrisis (Mar 10)
For my analysis of how deflating US-global financial asset mkts may lead to a US corp junk bond’/BBB/leveraged loan credit crisis, read my article, ‘Global Deflating Financial Asset Prices: Prelude to Next ‘Great Recession’ at my blog, http://jackrasmus.com.
#Banking (Mar 10)
watch out for global banking crises brewing: India shadow banks defaults. $10T non-performing bank loans global. Bank of Japan’s stock-buying QE program ($279B in stock ETFs) in big trouble, as it loses 14% of its assets. Medium size US banks in US oil-junk bond patch
#Fiscalstimulus (Mar 10)
Trump waffles on how to stimulate US economy now entering recession. Here’s what conservative Enterprise Institute says: “A little loan here and a payroll (tax) cut there – they are thinking far too small. They should be thinking this is a global financial crisis”
#USshale (Mar 9)
In response to Saudi price cut (their real target is US shale not Russia), US shale producers say they can still remain profitable at $31/bb. Texas crude now at $34. Saudis will keep driving lower prices until Shale with junk bond default & clear out some US players
#Repomarket (Mar 9)
To ward off a possible credit crunch the Fed boosted overnight Repos from $50B to $150B and 14 day Repos from $20 to $45B. In other words, QE lite by another name! Since last September Repo crisis Fed has pumped more than $500B into the market
#Coronavirus (mar 9)
Italy. Infected now 10,000 and deaths rise 25% in one day. Italy now more infections than So. Korea or Iran. Politicians announce ‘lockdown’ on entire country. No one is supposed to go anywhere. Sure. Let’s try herding cats. (not to say Italians are feline, of course
#financialcrisis (Mar 9)
US Dow down 1650 pts(-6%)mid-day. Asia mkts -6%. Oil futures<$30/bb. Spillover to credit mkts coming: $5T US junk/BBBs (energy, retail, then other). US now in recession. (Ditto EU, Japan, S.Korea, ANZ, Latin America, etc.) Bank crash India. Watch Fed more Repo+QE
#Corporatelending (Mar 9)
Global financial asset crash underway, soon to impact credit mkts starting with US junk in energy (oil fracking) and retail (big box), spilling over to rest of junk, then BBBs (most really also junk) and even I-grades. Dow down 1500. T’s all < 1%. Big QE coming
#Oil crashing. (Mar 8)
Saudi-OPEC declared ‘war’ on Russia. Lowered price 20%+ overnight. Saudi to pump 12mb/day, up from 9.7m Feb. Talk of oil prices falling to $20/bb. If so, many US shale producers go bankrupt. Energy junk bonds default. Retail junk bonds & leveraged loans next.
#CoronavirusEurope (Mar 8)
Reports now coming out that Germany last three weeks has had 40,000 ‘flu’ cases with 200 flu deaths. 3X normal. Could these have been coronavirus? Italians in north in exodus to south to flee virus in Lombardy-Milan region. How many will now spread it south?
#FinancialCrash (Mar 8)
now underway?? Oil falls to $30/bb today. US Stock futures down $1200 pts. 30-yr Treasury bonds fall to less than $1. Unprecedented financial asset crashes now in progress.
#CoronavirusUSA (Mar 8)
As US tested cases rise in hundreds, actual much higher. Why? Workers fear to get tested & told to stay home, with no paid sick leave, missed paychecks, no savings, unaffordable hospital deductibles (Drs. refusing office visits of infected), insured high ded/copay
#Oil (Mar 8)
Latest failed Russia-OPEC deal to cut output causes -9.4% collapse oil prices. High price Brent crude now $45/bb. Spilling over to stock & other financial asset prices: mideast stocks fall 8%-10% one day! Watch for falling oil to impact US energy junk bond mkt then BBB bonds
#Coronavirus (Mar 7)
Infections in Italy & Germany rising fast. Italy 6000 cases now, with 1200 in one day yesterday. Lombardy-Milan region ‘locked down’. Germany cases rise from 66 to 1000 in one week. So. Korea more than 7000. US East coast cases rising. Goldman Sachs says 2Q US GDP 0%
#USDeficits (Mar 6)
& social security cuts by Trump after Nov. In Scranton, PA today Trump said, “We will be cutting. It was not immediately clear whether he was referring to the mandatory spending programs, discretionary federal spending or both.” Source: Associated Press, March 6,
#globaleconomy (Mar 5)
China was center of virus crisis. Is India becoming center of next global financial crisis? Shadow banks failing, rupee declining, stock markets falling. No end in sight. What’s the financial contagion effect worldwide? Potentially bigger economic story than virus
#Fed (Mar 5)
quickly cuts rates 50 basis pts. Trump calls for more & says follow EU/Japan rates lower. Takeaways: Trump wants neg.rates; Fed now tail-ending financial mkts; Mkts ho-hum response so far to cut; except for res. housing, rate no effect on real econ; rate policy dead in water
#Fed (Mar 2)
Can Fed rate cut stop severed supply chains, falling foreign demand for US exports, US consumer hoarding, coming layoffs, crashing commodity prices? Absolutely nothing. Why rate cut then? Stop collapsing US stock & financial asset values. But that’s not its mandate, right?
#Fed (Mar 2)
Confirmed rumors that the Fed will cut rates wed. by 50 basis pts has turned stock prices around today. But the ‘buy the dip’ is weak. And money keeps flowing into safe haven Treasuries. This is ‘dead cat bounce’ week for stocks. As US econ weakens, decline will resume.
#Fed (Mar 1)
rumors growing of a Fed rate cut this week of 50 basis pts or .5% (lowering rage to 1%-1.25%), and coordinated with offshore central banks cuts as well. All designed to stop the freefall in equity prices. But wait! The Fed doesn’t target asset prices, right? Yeah, sure.
#stockmarkets (Mar 1)
More 500-1000 pt falls next week. Why so fast? Artificial run-up in stocks from Trump tax cuts boosting profits 25%, diverted mostly to fin. mkts as $1.2 trillion buybacks+dividends in both 2018 & 2019. Tax cut driven profits now disappearing. 2020 earnings now neg.
#Contagion (Mar 1)
Economic contagion deepening. Financial asset prices plunging everywhere. If continues, watch defaults in junk bonds & leveraged loans–starting with US energy & retail sectors. New financial crisis growing possible. As in 2008, followed by major real econ spillover
#coronavirus (Mar 1)
Confirmed cases in Italy surge more than 500 in one day! From 1128 to 1694. A week ago: 0. US-Trump still not stopping flights. Watch for ban on flight from Europe within weeks. Report of 60,000 ship containers locked up in wrong ports or on freighters offshore
#Chinaeconomy (Mar 1)
Predictions growing from legitimate sources that China’s economy will contract 1Q20 by -2% to -14%. Deep contractions Europe & Japan also. Global recession is here. Only question: how soon will it spill over to US.
#coronavirus (Mar 1)
Italy infected with 1128 cases, with 29 deaths, up from 0 week ago. More than 250 cases per/d reported, rising fast to=Wuhan’s 470 cases per/d. US deaths in Washington state, as new pocket in nursing home. Calif. shoppers clearing out grocery stores of cleaning goods
#coronavirus (Mar 1)
Unless it’s an N95 mask it’s totally worthless. Even with N95 masks, most contagion spread by virus on surfaces of objects and then touched with hands or other body parts.
#coronavirus (Mar 1)
Confirmed transmission from Italy to Canary islands and Mexico, due to visitors from Italy. Trump-US policy announced to ‘screen’ travelers from Italy means only those with symptoms. Not tests. Trump says US has 43m test kits. Calif. says it’s been given only 200.
Dr. Jack Rasmus
@drjackrasmus
#USrecession What’s different then (2008) & now (2020)? (Mar 30)
In 2007: real economy booming; financial crash then brings down real economy. In 2020: real econ slowing fast 4Q19(USA), stagnant (EU), recession (Japan); real econ collapses (1Q/2Q20) causing financial shock (& crash next?)
#Banks (Mar 30)
may not be ‘root’ of the problem in this ‘Great Recession 2.0’, but may be the ‘trunk’-espec. shadow banks Capital mkts & Institutional investor. Problems in comm paper, corp bond, repo mkts=shadow banks pulling back & commercial banks not stepping in to provide liquidity.
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#Coronavirus (Mar 30)
Both S. Korea and US recorded their first cases on Jan. 20. Korea started national mass testing (15k/day) of everyone by Jan. 30. US still has shortage of tests and no such policy. >100,000 US dead will be the legacy of that. So blame Trump, but also Bush & Clinton.
#Coronavirus (Mar 30)
Why is there such shortage of PPE in US? Ask GW Bush whose tax cuts 2001-04 subsidized US manufacturers to move to China after (i.e. after Clinton in 2000 gave China special trading rights–i.e. free trade lite). From Reagan to Trump, US econ policies changed little
#Coronavirus (Mar 30)
Why is there such shortage of US hospital beds? Ask Bill Clinton, whose healthcare legislation provided tax & other incentives to hospitals to reduce hospital beds & who allowed private for-profit-hospitals to buy up public hospitals & avoid anti-trust laws doing it
#Fed (Mar 29)
has committed $3T of its promised $4.5T already. But nada to most unstable sectors: $2.2T junk corp bonds, $1.2T junk leveraged loans, and low rated local government bodies. When defaults here start watch for psychological contagion effects to spread to general credit mkts
#Fed (Mar 29)
QE & excess liquidity 2008-16 fueled asset bubbles >2008. Hiatus 2017-18. Renewed 2019. More Fed liquidity 2020-21 will now fuel even bigger bubbles 2021-30. “The Problem (excess liquidity) becomes the Solution to the Problem” & creates next crisis. Financialization new norm
#Coronavirus (Mar 28)
Ever wonder where Google and Apple got the hundreds of thousands of masks they said they are now donating in the US? Not from their cellars in Cupertino, CA where they are located. Could it be they’re buying them in China? And that guy who owns Virgin Atlantic.
#Coronavirus (Mar 28)
China’s mega entrepreneur, Jack Ma, has offered to donate 1m masks and 500,000 test kits to the US. But no mention of China’s offer to sell masks or Ma’s offer to donate in Trump press conferences.
#Coronavirus (Mar 28)
US health officials say we need 3.5B masks. China now produces 116M A DAY! 12 times more than before the virus. China giving them away to Italy. So why isn’t Trump buying them? What happened to the US-China trade deal?
#healthcare (Mar 26)
What’s going to happen to millions being laid off who had employer provided health insurance?Why not create new Medicare Part E temp plan to sign up when filing for unemployment benefits? Add a surtax to Medicare’s 1.45% & reimburse Employers & workers in tax credits
#jobs (Mar 26)
How does this week’s 3.28 million new unemployment benefit claims compare to last week’s? It was 282,000. And was averaging less than 300,000 per week for past several months. Economists had forecast the increase would be 1m but it’s 3.2m.
#Jobs (Mar 26)
Data today show 3.28 million more workers applying for unemployment benefits this week. That’s just the tip of the iceberg of what’s coming. Federal Reserve governors had forecast 2m more. Meanwhile, Repub. Senators want to cut $600 benefit in Senate bill already agreed on.
#Fiscalstimulus. (Mar 26)
Just started reading the 880p actual Senate bill. $1,027B going to business is not the whole story. Looks like hundreds of billions more in the form of corporate tax cuts as well. Will be reporting on all that here once I finish reading the monster handout doc
#bailout (Mar 25)
In Senate bill Airlines get $58B–half as loans & half as grants, the latter to pay their workers. Reports coming out airlines taking the grants but not the loans. Could they be not that starved of cash? Taxpayers/Govt paying the workers. Call that ‘Airline Socialism’?
#Fiscalstimulus (Mar 25)
What’s holding up the Senate signing off $2T fiscal stimulus bill agreed last night? Repub Senator (Sasse-Neb.) says the $600 unemployment too generous, keeps workers taking new job. In reply, Bernie Sanders says he’ll hold up bill if Sasse won’t approve the $600
#fiscalstimulus (Mar 25)
Trump admin., media, & some economists now downplaying the Senate bill as a ‘stimulus’ bill. Only helps put a floor under current collapse of US econ. Another fiscal stimulus needed after short term effects of Senate $2T. Senate bill only good for 6-8 wks support
#USrecession (Mar 25)
What will be the GDP impact on the US economy? Goldman & Morgan Stanley banks forecast -24% to -30% 2Q20 drop in GDP. IF A V-SHAPE recovery (not likely) a full yr. GDP contraction of -5% to-8%. If not V-shape, worse. Major drag effect to occur. Recovery more U-shape
#USSenate (Mar 25)
Check out my summary of the final agreement on the economic Stimulus passed last night by the Senate. My analysis why it won’t be enough. Go to my blog,
#Fiscalstimulus (Mar 25)
Check out my summary and analysis of the Senate’s final agreement on an economic stimulus bill earlier this morning. Summary is based on latest reports by WashPost and CNN on the Senate document. To read go to m blog,
#Fiscalstimulus (Mar 25)
Check out my preliminary preview of the Senate bill and deal (subject to change when final details released) on my latest blog post at
#fiscalstimulus (Mar 24)
Here’s some details of Senate bill: unemployment insurance increased $600 over base, but for only 4 mos. (Good news: part time/temps/contractlabor covered). $1,200 check to families + $500/child (max # kids and income eligibility cutoff both ?) Stay tuned for more
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#fiscalstimulus. (Mar 24)
This confirmed in pending Senate bill: After threatening Congress they will fire all their workers if Congress doesn’t agree, Airlines will get $32B CASH GRANT, + another $29B in loans.
#Fed (Mar 23)
what’s its new ‘backstop’ to Main St. just announced? Fed will ‘support’ student, auto, credit card & small business loans–not ‘make’ loans. Means Fed to allow card, student, auto securitized loans made by banks & investors to dump that debt on the Fed, which will buy it.
#stockmarkets (Mar 23)
Global stock mkts rose from $35T in 2009 to $85T in 2019. In Trump’s 3 yrs, from around $70T to $85T, artificially fueled by massive investor tax cuts & cheap rates. That artificial ‘last leg’ now imploding back to $70T. So why is Fed & Congress subsidizing it again
#fiscalstimulus (Mar 23)
Once again on the Dems refusing to vote fpr McConnell’s $500B big corp handout bill: why won’t Dems even vote on today’s procedural vote? Because it takes 60 votes to pass. If they agree now, McConnell then needs only 50 to pass the $500B handout for corp buddies.
#Fed (Mar 23)
announced today it will start buying corp bonds, not just govt Treasuries from investors. Just like Europe & Japan have been doing for years. What’s next? Buy stock ETFs, like Japan? Negative rates like both? Who says the Fed’s mandate isn’t fin. mkts. What a fiction.
#Trump (Mar 23)
reportedly ‘toying’ with a return to work despite virus mounting cost in lives. About to decide “let them go back to work”. Hey Donald, don’t forget Marie Antoinette’s “let them eat cake” famous line. (To be fair to DJT, other Dem politicians, like Cuomo, considering same)
#Fiscalstimulus (Mar 23)
What’s the ruckus about Dems holding up the $500b bill in Senate? It’s p. 391 of bill where it says the government can keep secret for 6 months which corporations get the non-bank bailout $500k free money? (Banks will be bailed out by Fed’s $6.2T printed money)
#USrecession (Mar 23)
Watch for Trump & politicians to move to getting folks to return to work, despite rising infection & death rates. Don’t want to pay the cost ($4T+) stimulus to cover unemployed & shutdowns. (But will get Fed to spend $6T to pre-bail banks, investors & Wall St.)
#Fed (Mar 23)
latest move today to support investors behind credit cards, student, small business loans. Why not support the borrowers (students, households, small businesses) not the lenders? Reduce card rates to 7%; student loans to 1% (10yr Tbond), suspend interest on small bus. loans
#USrecesssion (Mar 23)
As the econ contraction deepens politicians will begin talking about, and finding ways, to get people back to work despite the rising virus caseload and deaths. The econ crisis will take precedence over the health crisis. (NY gov. Cuomo already raising the point)
#financialcrisis (Mar 22)
Corp bond mkts far more important to stability than stocks. Corp bond mkt now shut down. No issues occurring, despite Fed’s $2.2T injections last week. So watch for big Fed bailout of corp bonds this week, esp. junk & BBB investment grade (half of which is junk)
#fiscalstimulus (Mar 22)
Why does McConnell insist on $350B in loans to big corps, when Fed to provide $4T in loans through banks to big corps? Is it because the $350B will be ‘forgiven’ at a later date & in effect become grants? Btw, no deal with Dems tonite. Watch big stock fall Monday
#USrecession (Mar 22)
We are at am economic ‘rubicon’–not for a recession, or even for a great recession. But for a possible cross over from great recession 2.0, now occurring, to a bona fide econ depression. (My prediction in my 2010 book, ‘Epic Recession: Prelude to Global Depression’)
#USGDP (Mar 22)
If you thought Goldman Sachs’ prediction of 2Q20 GDP contracting -14% was shocking, then consider Morgan Stanley tonight predicting -30%. Meanwhile, McConnell blames Pelosi for not agreeing to a bigger bailout of big corps instead of her insistence on unemployment benefits
#Financialcrisis (Mar 22)
Stock futures trading for monday already halted after fallen the max. Fin. mkts in trouble are: repos, muni bonds, commercial paper, mortgage bonds, oil-commodity futures, residential mortgage bonds, forex, corp junk bonds/BBBs. Panicked investor ‘dash for cash’
#Bailout (Mar 22)
Big corps complain Congress’ bailout for them is not cash grants but loans. After they gave their investors, CEOs/Mgrs more than $3T in stock buybacks & dividend under Trump, 2017-19, now they’re broke? Small bus. need cash grants & workers 3/4 pay unemployment benefits.
#fiscalstimulus (Mar 22)
bill in Congress. No deal as of late Sunday. Democrats want more unemployment insurance, more small business support, and states. McConnell & republicans want more for big corps and no unemployment insurance increases.
#Bailouts (Mar 21)
Correct that: Airlines spent $48B on buybacks over 10 prior years; Boeing spent $43B from 2013-1Q2019. Airlines want $58B grant ($50B passengers, $8B cargo). Boeing wants $60B govt loan. (Boeing’s debt already >$40B. Loan would raise to >$100B)
#Bailouts (Mar 21)
Here’s another stat re. piggie airlines: 96% of their total cash flow for 10 years was used for stock buybacks! (i.e. their $43B buyback binge). And now that execs & shareholders spent it on themselves, they want $58B from Congress & us. Watch Trump give it to them!
#Bailouts (Mar 21)
Boeing wants $60B too. Spent $43B on stock buybacks from 2013-2019. Only suspended buybacks when 737max flopped in early 2019
#Bailouts (Mar 21)
Airlines are ‘pigs at the trough’. After giving their execs and shareholders $45B in stock buybacks in recent years, they’re now demanding $58B in ‘cash grants’ + more tax credits from Congress. If don’t get it, threaten mass layoffs by August. Boeing wants another $60B
#Fiscalstimulus (Mar 21)
Oops. Forget my earlier tweet of $2T package from Congress. Latest news: only $1.3T. (The rest due to assumed ‘multiplier’ effect). But ‘multiplier’ will be minimal as consumers stay home & use check to pay debt. (btw, only ‘some’ will get the $1k check from govt)
#Coronavirus (Mar 21)
Big shortage PPE for drs-nurses-hospitals. 2 reasons: 1. US corps offshored production to China (now with surplus, giving to Italy). 2. Trump’s 2018-19 trade war with China reduced inventory. What happens when Drs-Nurses get sick? Can’t replace them like masks, etc.
#Fiscalstimulus (Mar 21)
Rumor that Congress will vote on $2T bailout bill on Monday. That’s half what’s needed to bail out unemployed, small businesses, & local govts. Fed is already pre-bailing out banks with planned $4.5T liquidity to repos, munis, MMFs, Comm.Paper, etc. + QE for bonds
#Trump (Mar 21)
keeps saying he prefers corps stop stock buybacks. What about dividend payouts? (Together both=$1.2T in each of last 2 yrs). Will corps now getting $500B US bailout still be allowed to do buybacks? Trump doesn’t follow up his ‘wish’ with any enforcement proposals
#Trump (Mar 21)
keeps saying he ‘authorizes’ moratorium on foreclosures & evictions. But HUD today says it has no authority to enforce that until Congress passes a law. Trump’s ‘authorization’ just says he supports a law
#USrecession (Mar 20)
For my latest update on the crashing US economy, my critique of Congress forthcoming recovery proposals, and my alternative fiscal recovery program (phases 1 & 2), listen to my Alternative Visions radio show podcast today at
Alternative Visions
#USrecession (Mar 20)
JP Chase forecasts 2Q20 US GDP contraction of -14%. That’s more severe than worst quarter 1932 during the Great Depression when the contraction peaked at -13% GDP. US will have to raise govt spending from 21% to 40% of GDP as 1942 = $4t more on top of present $4.4T
#USrecession (Mar 20)
Goldman Sachs predicts 2 million to be laid off in March. That’s twice as fast as the monthly lay offs during worst months of 2008-09 crisis, and faster than in the aftermath of the 1929 stock crash and 1930-31 banking crashes.
#Trump (Mar 20)
In press conf. today Trump says he’d like to stop corp buybacks if they’re to get $billions US aid. Well, do it Donald! And stop dividend payouts too. How much buybacks+dividends under Trump? $1.2 trillion/year last 2 yrs. Obama also ave. $800B/yr for 6 yrs (Airlines $45B)
#USrecession (Mar 19)
Want to know how the current crisis of 2020 compares with the last, 2008, & both with the 1930s great depression? Read my Sept. 2018 article, “Comparing 1929 with 2008 and the Next” predicting the current crash, which is reproduced on my blog
#Oil (Mar 18)
crude oil now at $25/barrel. That means > $1T in energy junk bonds on way to default. If so, credit crunch contagion to spread across mkts. Fed announces full backstop for money mkt funds. This IS great recession 2.0 (or potentially even worse).
#USrecession (Mar 18)
Trump raises stimulus to $1.3T. Need more than 2X that. (see my ‘Cornavirus Economic War Mobilization’ plan http://jackrasmus.com) Meantime, Fed keeps pumping more liquidity into corps & mkts. No effect. Credit crisis here. Buyers say 45% chance junk bond default
#financialcrisis (Mar 17)
Treasury Secretary Mnuchin today warns that current financial crisis is ‘worse than 2008’. Jobless rate could rise to 20%. Believes Trump’s fiscal package will prevent both. He’s right about first two points, wrong about the third.
#Fed (Mar 17)
opens another money spigot to financial institutions today. To ‘shadow banks'(fin. institutions like mutual funds & brokers that aren’t regulated by Fed). $1 trillion a day now available to Repo mkts (added to $2.2T last wk. Includes ‘commercial paper’ mkt for mutual funds
#USrecession (Mar 17)
Read my call for a ‘Coronavirus Economic War Mobilization Plan’ along the lines of US war mobilization of 1942. Why we are now in an ‘Economic Pearl Harbor 2020’. (This post follows up my two preceding on need for a $2.2T immediate spending program & how to fund it)
#USrecession (Mar 17)
What US needs now is a ‘Coronavirus War Mobilization Budget’! In 1940 Govt spending was 16% of US GDP. By 1942 it was 40%. Since 1947 govt spending has been 20% of GDP. We need 40% now. See my $2.2T proposal “Addendum to Recovery Program’
#Fiscalstimulus (Mar 16)
As Congress debates how much to spend to save Main St.–and the Fed spends $2.2T immediately to pre-emptively bail out banks & investors–the economy crashes. Read my own ‘Economic Recovery Program’ proposal (+addendum on financing it)
#Fiscalstimulus (Mar 16)
Dems Senate propose $750 billion in emergency stimulus. Too little. $2 trillion will be needed (which is what the Fed just gave banks in free money today). Senate’s McConnell is delay and prevent the $750B, let alone more. WHy? US deficit already at $1.4T this yr
#USstocks (Mar 16)
Markets down -30% so far as of today from prior Feb. highs. My prediction: will decline -50% before current crisis is over. Other financial mkts? Global oil prices will fall within 30 days to $25/bb. Junk bond defaults in US oil patch are inevitable, and already begin
#China (Mar 16)
independent business research sources say China’s 1q20 GDP will contract 10%-15%, though it won’t report it as such.
#USrecession (Mar 16)
What’s the difference between a ‘normal’ recession (R) & ‘Great’ recession (GR)? Ans: Financial markets crash that deepens & prolongs R. Between R, GR & Depression(D)? D occurs after series of banking crashes, as in 1930, 1931, 1932, 1933 in USA
#USrecession (Mar 16)
Here’s an especially scary stat about unserviced debt that leads to default, bankruptcies & mass layoffs: the average days of available liquidity for millions of US small businesses is only 27 days! After that, if no sales revenue, default. Mass layoffs coming in May
#Fed (Mar 16)
rate cuts & QE not about stimulating investment; nor about stopping stock collapse. About preventing bus. defaults contagion to banks that then crash in turn. US not just in recession, but on cusp of another great recession with financial crash overlaid on real recession
#DemocratDebate (Mar 15)
Tonight in debate with Sanders, Biden announces his VP will be a woman. In recent days his team negotiating with Warren. Biden adopts Warren’s bankruptcy & college tuition proposals. Warren selling self to highest bidder. Any bets she’ll be his VP choice anyone?
#USrecesssion (Mar 15)
I’m going to venture here a risky prediction: that despite the massive Fed liquidity injection the financial markets won’t respond all that positively. They may read it as ‘the situation is worse than it appears’. Of course, I could be wrong (hopefully). We’ll see.
#Fed (Mar 15)
back to the future! Fed adds another $500B + $200B in QE purchases as well as 0% rate. After last week’s $1.5T repo purchase. Add all that $2.2T to Fed’s already $4T debt balance sheet. Is that October 2008 deja vu? Free money has no effect in across-the-board “Dash to Cash”
#FED (Mar 15)
just announced rate cut to 0%. Watch for more massive QE & QE lite & term auctions. Fed back to 2008 crisis mode. Question: will this placate or worry markets even more tomorrow? Other news: Calif issues order everyone >64 must self quarantine now. Entire state locking down?
#USrecession (Mar 15)
Minimalist measures being proposed by Trump & Dems to check deep threat of virus to US economy. No major fiscal stimulus program beside Fed & more tax cuts, which won’t work. Read my ‘An Economic Recovery Program: Theirs vs. Mine’ at my blog,
#Fed (mar 14)
watch Fed before mtg to announce a ‘term auction facility’ for shadow bank system, esp. mutual funds and commercial paper. Looks like parts of the banking system are already near freezing up but no one is saying it publicly. Fed action adds to its $1.5T for Repo mkt already
#Fed (Mar 14)
Trump raises again today his right to fire Fed chair, Powell. Wants negative rates like EU & Japan (now in recession; so much for negative rates). Powell capitulated to Trump a year ago & lowered rates; now will move to 0 & QE fast. Won’t matter. Trump looking for scapegoats
#USrecession (Mar 14)
Consumers (66% econ) all that held up US econ 4Q19. Now collapsing. How bad: not just empty store shelves. Now online delivery system being overwhelmed. What will families with babes & young children do? Trump-Pelosi only agree on testing. No econ stimulus yet.
#USrecession (Mar 14)
Replying to ‘economic denialists’ on this blog: $1.5T repo injection ‘not a stimulus’; so bank loans don’t boost economy? Must be ‘paid back fast’; so 1 & 3 mos. repo terms won’t be rolled over? ‘No hoarding’ going on; so corp credit line drawdowns for stock buying?
#Fed (Mar 14)
Next moves this week (after $60B/mo. & $1.5T repo injections already): talk of 1% rate cut (back to 2008 levels of 0.25%) + ‘term auctions’ (a la 2008) QE4. Will Fed go ‘all out’? Or wait to April? Former, if mkts tank again (and they will). It’s a (great?) recession stupid!
#Junkbonds (Mar 13)
Energy junk bond analyst (interviewed on Bloomberg) predicts 30%-40% of junk-laden US oil fracking corps could default this year, should oil prices remain at $30/bb or less for 3-4 more months. (Watch junk heavy retail & travel corps follow as well before year end)
#Coronavirus (Mar 13)
Why first test kits were worthless: they tested for antibodies, not virus itself. New kits test for virus direct. Expect big run up in cases. Viruses are RNA proteins, that take over DNA in our cells. They’re insidious little bastards. And they change (mutate) often
#TreasuryBonds (Mar 13)
liquidity problems in the Repos. Why. Hedge funds took over much of role of banks as intermediaries in repos. Are hedgies now requiring more cash to cover positions elsewhere? Or banks needing more liquidity to service clients’ drawing down credit lines? Or other?
#TreasuryBonds Mar 12)
Why did T-bond rates rise this week, despite stocks collapse? What’s up? Hedge funds in the Repo mkt speculating with Treasuries leveraging bets on interest futures trades, the latter now unwinding due to their losses. Is Fed’s $1.5T repo injection to cover losses?
#stockmarket (Mar 12)
How much did the record 11 yr. stock market bubble create for investors (from Mar 6, 2009 to Feb. 19, 2020)? more than 500%.
#China (Mar 12)
& emerging markets. What’s going on there? Devaluing currencies and dollarized local bonds imploding. Think Argentina & Brazil in trouble now? Just wait. Collapsing currencies & trade means no import purchases. And then there’s China ….
#Creditcrisis (Mar 12)
Accompanying the panic rush to liquidity (i.e. sell off all other assets & hold cash), aka liquidity preference (Keynes) is the related ‘liquidity trap’–i.e. providing more liquidity results in just hoarding it, rather than investing or spending (households) it
#Creditcrisis (Mar 12)
Business media reports (Bloomberg) that the Fed has injected now $5 trillion of liquidity into markets to try to prevent liquidity crisis. The ghost of Keynes (liquidity preference over all other assets) now stalks the corridors of Corporate America everywhere!
#Gold (Mar 12)
Gold prices fall instead of rise. Reason? Same as for ‘safe havens’ like US Treasuries. Investors’ panic flight to hold cash. As Keynes would say: liquidity preference is trumping (no pun intended) demand to hold all other forms of non-cash assets, including the ‘safest’.
#USTreasuryBonds (Mar 12)
The $16T market for US Treasuries acting strange. US stocks fall 2,200 pts & Treasury rates rise (and prices fall). Not vice-versa. Reason: Flight to hold cash everywhere means investors cashing in T’s after big gains=excess supply & price decline & T rates rise.
#Coronavirus (Mar 12)
Head of Harvard Health School today on PBS estimates 40,000 US infected within 2 weeks. 10,000 right now. US worse response of advanced economies. Big problem with testing.
#Repos (Mar 12)
Trump said last night “it’s not a financial crisis”. Why then has Fed announced today a $500B injection into 1 mo. repos + another $500B 3 mo. repos? Reason for $1T ‘QE by another name’: corps drawing down bank credit lines at record levels to hoard cash as revenues crash
#Junkbonds (Mar 12)
The high yield (junk) corporate credit default swaps (CDS) index escalates to 10 year high now in just few days to insure against junk bond defaults (energy, retail, other). Watch for contagion to spread to BBB corporate bonds. But Trump said “not a financial crisis”
#Junkbonds (Mar 12)
For all you finance guys/gals out there: will oil patch high yield(junk) corporate bonds+Junk ETFs(2020 crash)become new subprime mortgage+CDS(2008 crash)? Or will it be oil futures? Repos? India banks? Italy’s? Japan’s central bank ETF losses? Black swans are flocking
#Trump (Mar 11)
bragged about the millions of test kits on the way. Calif. Governor Gavin Newsom said today the test kits California got came without the ‘reagent’. So can’t be used. It’s like sending a printer without the ink and saying write me a report Gavin about how well it’s going
#Repos (Mar 11)
Fed worried re. liquidity, increases one day Repo injection to $175B. (Meanwhile, Trump walks back some of his speech errors in a tweet, saying the freeze on travel from Europe to the US does not include cargo & freight. (It doesn’t have to go through London to get to US)
#Trump (Mar 11)
what do US markets think of Trump’s speech and travel ban? Dow futures down 1124 pts so far. Another -8% one day drop coming maybe?
#Trump (Mar 11)
says on Tv that “testing is expanding rapidly”. But Grand Princess incubator boat in Calif. testing only those with symptoms. Most of 2500 without symptoms told to go home. Not enough tests. (Compare: China tested 200K per day; S. Korea 15K/day. US so far 5k in past 4wks)
#Creditcrisis (Mar 10)
For my analysis of how deflating US-global financial asset mkts may lead to a US corp junk bond’/BBB/leveraged loan credit crisis, read my article, ‘Global Deflating Financial Asset Prices: Prelude to Next ‘Great Recession’ at my blog, http://jackrasmus.com.
#Banking (Mar 10)
watch out for global banking crises brewing: India shadow banks defaults. $10T non-performing bank loans global. Bank of Japan’s stock-buying QE program ($279B in stock ETFs) in big trouble, as it loses 14% of its assets. Medium size US banks in US oil-junk bond patch
#Fiscalstimulus (Mar 10)
Trump waffles on how to stimulate US economy now entering recession. Here’s what conservative Enterprise Institute says: “A little loan here and a payroll (tax) cut there – they are thinking far too small. They should be thinking this is a global financial crisis”
#USshale (Mar 9)
In response to Saudi price cut (their real target is US shale not Russia), US shale producers say they can still remain profitable at $31/bb. Texas crude now at $34. Saudis will keep driving lower prices until Shale with junk bond default & clear out some US players
#Repomarket (Mar 9)
To ward off a possible credit crunch the Fed boosted overnight Repos from $50B to $150B and 14 day Repos from $20 to $45B. In other words, QE lite by another name! Since last September Repo crisis Fed has pumped more than $500B into the market
#Coronavirus (mar 9)
Italy. Infected now 10,000 and deaths rise 25% in one day. Italy now more infections than So. Korea or Iran. Politicians announce ‘lockdown’ on entire country. No one is supposed to go anywhere. Sure. Let’s try herding cats. (not to say Italians are feline, of course
#financialcrisis (Mar 9)
US Dow down 1650 pts(-6%)mid-day. Asia mkts -6%. Oil futures<$30/bb. Spillover to credit mkts coming: $5T US junk/BBBs (energy, retail, then other). US now in recession. (Ditto EU, Japan, S.Korea, ANZ, Latin America, etc.) Bank crash India. Watch Fed more Repo+QE
#Corporatelending (Mar 9)
Global financial asset crash underway, soon to impact credit mkts starting with US junk in energy (oil fracking) and retail (big box), spilling over to rest of junk, then BBBs (most really also junk) and even I-grades. Dow down 1500. T’s all < 1%. Big QE coming
#Oil crashing. (Mar 8)
Saudi-OPEC declared ‘war’ on Russia. Lowered price 20%+ overnight. Saudi to pump 12mb/day, up from 9.7m Feb. Talk of oil prices falling to $20/bb. If so, many US shale producers go bankrupt. Energy junk bonds default. Retail junk bonds & leveraged loans next.
#CoronavirusEurope (Mar 8)
Reports now coming out that Germany last three weeks has had 40,000 ‘flu’ cases with 200 flu deaths. 3X normal. Could these have been coronavirus? Italians in north in exodus to south to flee virus in Lombardy-Milan region. How many will now spread it south?
#FinancialCrash (Mar 8)
now underway?? Oil falls to $30/bb today. US Stock futures down $1200 pts. 30-yr Treasury bonds fall to less than $1. Unprecedented financial asset crashes now in progress.
#CoronavirusUSA (Mar 8)
As US tested cases rise in hundreds, actual much higher. Why? Workers fear to get tested & told to stay home, with no paid sick leave, missed paychecks, no savings, unaffordable hospital deductibles (Drs. refusing office visits of infected), insured high ded/copay
#Oil (Mar 8)
Latest failed Russia-OPEC deal to cut output causes -9.4% collapse oil prices. High price Brent crude now $45/bb. Spilling over to stock & other financial asset prices: mideast stocks fall 8%-10% one day! Watch for falling oil to impact US energy junk bond mkt then BBB bonds
#Coronavirus (Mar 7)
Infections in Italy & Germany rising fast. Italy 6000 cases now, with 1200 in one day yesterday. Lombardy-Milan region ‘locked down’. Germany cases rise from 66 to 1000 in one week. So. Korea more than 7000. US East coast cases rising. Goldman Sachs says 2Q US GDP 0%
#USDeficits (Mar 6)
& social security cuts by Trump after Nov. In Scranton, PA today Trump said, “We will be cutting. It was not immediately clear whether he was referring to the mandatory spending programs, discretionary federal spending or both.” Source: Associated Press, March 6,
#globaleconomy (Mar 5)
China was center of virus crisis. Is India becoming center of next global financial crisis? Shadow banks failing, rupee declining, stock markets falling. No end in sight. What’s the financial contagion effect worldwide? Potentially bigger economic story than virus
#Fed (Mar 5)
quickly cuts rates 50 basis pts. Trump calls for more & says follow EU/Japan rates lower. Takeaways: Trump wants neg.rates; Fed now tail-ending financial mkts; Mkts ho-hum response so far to cut; except for res. housing, rate no effect on real econ; rate policy dead in water
#Fed (Mar 2)
Can Fed rate cut stop severed supply chains, falling foreign demand for US exports, US consumer hoarding, coming layoffs, crashing commodity prices? Absolutely nothing. Why rate cut then? Stop collapsing US stock & financial asset values. But that’s not its mandate, right?
#Fed (Mar 2)
Confirmed rumors that the Fed will cut rates wed. by 50 basis pts has turned stock prices around today. But the ‘buy the dip’ is weak. And money keeps flowing into safe haven Treasuries. This is ‘dead cat bounce’ week for stocks. As US econ weakens, decline will resume.
#Fed (Mar 1)
rumors growing of a Fed rate cut this week of 50 basis pts or .5% (lowering rage to 1%-1.25%), and coordinated with offshore central banks cuts as well. All designed to stop the freefall in equity prices. But wait! The Fed doesn’t target asset prices, right? Yeah, sure.
#stockmarkets (Mar 1)
More 500-1000 pt falls next week. Why so fast? Artificial run-up in stocks from Trump tax cuts boosting profits 25%, diverted mostly to fin. mkts as $1.2 trillion buybacks+dividends in both 2018 & 2019. Tax cut driven profits now disappearing. 2020 earnings now neg.
#Contagion (Mar 1)
Economic contagion deepening. Financial asset prices plunging everywhere. If continues, watch defaults in junk bonds & leveraged loans–starting with US energy & retail sectors. New financial crisis growing possible. As in 2008, followed by major real econ spillover
#coronavirus (Mar 1)
Confirmed cases in Italy surge more than 500 in one day! From 1128 to 1694. A week ago: 0. US-Trump still not stopping flights. Watch for ban on flight from Europe within weeks. Report of 60,000 ship containers locked up in wrong ports or on freighters offshore
#Chinaeconomy (Mar 1)
Predictions growing from legitimate sources that China’s economy will contract 1Q20 by -2% to -14%. Deep contractions Europe & Japan also. Global recession is here. Only question: how soon will it spill over to US.
#coronavirus (Mar 1)
Italy infected with 1128 cases, with 29 deaths, up from 0 week ago. More than 250 cases per/d reported, rising fast to=Wuhan’s 470 cases per/d. US deaths in Washington state, as new pocket in nursing home. Calif. shoppers clearing out grocery stores of cleaning goods
#coronavirus (Mar 1)
Unless it’s an N95 mask it’s totally worthless. Even with N95 masks, most contagion spread by virus on surfaces of objects and then touched with hands or other body parts.
#coronavirus (Mar 1)
Confirmed transmission from Italy to Canary islands and Mexico, due to visitors from Italy. Trump-US policy announced to ‘screen’ travelers from Italy means only those with symptoms. Not tests. Trump says US has 43m test kits. Calif. says it’s been given only 200.
Dr. Jack Rasmus
@drjackrasmus
Posted in Uncategorized | Leave a Comment »
Trump likes to call himself a ‘war president’. But his claiming this term turns the definition into a bad joke.
Here’s a few brief thoughts on that theme:
Today Trump announced he was ‘invoking’ the war production act to get GM to produce ventilators at its abandoned Lordstown, OH, auto plant.
But wait. Didn’t Trump already ‘authorize’ the War Production Act a couple weeks ago? Was ‘authorization’ just a PR stunt? Appears so. And authorize who to do what? Well, that was never defined either. Nothing happened after authorization. It was just a media soundbite. It was all a sales pitch and marketing spin to the nation. Kind of like someone bankrupt saying ‘the check is in the mail’. Or ‘call me on friday when I get paid’. You can’t believe a word he says.
If Trump were a true war president, instead of the fake and caricature that he is, he’d have seized the Lordstown GM plant weeks ago, ordered the requisitioning nation wide of all required materials to produce ventilators, moved all necessary technical personnel for production to the plant, used the Army Corp of Engineers to build new housing onsite at the plant for the new workforce; requisitioned local construction equipment necessary for such; then run the plant 24-7 and deliver ventilators via the USAF C-135 fleet to cities most in need.
If he were war president, he wouldn’t have ‘invoked’ the war production act just for ventilators, but for all needed medical-hospital equipment. And told everyone involved if they didn’t deliver on time they’d be fired.
In the interim, he would have ordered FEMA to immediately purchase all medical equipment worldwide asap, regardless the price (no negotiations), to be delivered again via USAF to needed cities directly, without diversion to warehousing by the Federal government.
No. Trump isn’t even close to a war president. He couldn’t stand in Franklin Roosevelt’s shadow. Or Harry Truman’s. Or Woodrow Wilson’s even.
No, Trump is a ‘true believer’ that the market solves everything and immediately. Just wave the magic market wand and it will appear! Like the Wizard of Oz behind the curtain, just pull a couple levers, make some loud noise, and it will all happen by itself. Just ask private enterprise and they’ll do it!
In 1941-42 Franklin Roosevelt activated US War Production. A special War Production Board was formed within days of December 7, 1941. It was empowered to requisition anything and everything considered necessary for the war effort. And it did. Roosevelt’s first executive order was to mass produce penicillin, which was thought impossible at the time. The US did it within a few months. Millions would be saved from infections during the war as a result. So where’s Trump’s Executive Order to produce a vaccine for the virus? He calls in a few CEOs from big Pharma and then conducts a media event. Why haven’t all the best medical research minds been mobilized, put in a room in Atlanta at the CDC or even the Pentagon, and told don’t come out until you have it?
During world war II the US didn’t wait for private enterprise to convert factories to war production. The government itself built factories and plants, then leased them over to the private sector to manage. It built entire sections of cities to house workers coming to the new facilities from around the country. You couldn’t obtain building materials to build a house during war time. Ford motor company made a total of 169 cars during the war. But was able to produce tens of thousands of trucks and tanks. So where’s our factories to produce ventilators, N95 masks, face shields, medical gowns, and all the rest of PPE needed. (I’ll tell you where, they were offshored decades ago by US capitalists seeking cheaper wages and greater profits…mostly to Asia and to China which, by the way, now has a surplus that it’s giving to Italy). But when US state governors tried to buy from offshore, the ventilators and PPE are seized by FEMA and the Federal Government. Trump’s administration not only can’t deliver, it’s become an obstacle to governors’ trying to do so. It’s like a general telling his troops to launch an attack but leave half your guns and ammunition here at headquarters company!
If Trump is a war president, he should be sacked, demoted, and sent to a base on the north shore of Alaska to count the caribou.
Trump is a Herbert Hoover wrapped in a Neville Chamberlain; an incompetent general who dribbles out ammunition to his colonels (governors) and tells them to steal from each other if they don’t have enough. He’s an armchair general whose chair has no arms! He’s all ‘talk the talk &’ and no ‘walk the walk’, as we used to say!
He’s a commercial real estate pitch man, a barker for a carnival sideshow government, and pathological liar who insults us by running his daily ‘dog & pony’ sales pitch he dares to call a press conference.
Give him a pension and send him away to count the Caribou. Better yet, to the US base in Antarctica to count penguins!
Dr. Jack Rasmus
March 27, 2020
Posted in Uncategorized | 1 Comment »
Dr. Rasmus on Twitter
Jack’s Weekly Radio Show, ALTERNATIVE VISIONS
NEW BOOK
While the capitalist system has undergone numerous restructurings throughout its history, capitalist elites purpose in restructuring has remained the same: to restore and/or extend their hegemony. The current restructuring, operative since 1978, is called Neoliberalism. The book examines Neoliberalism as both an Idea and an historical practice composed of a particular mix of fiscal-monetary-trade-industrial policies that began with the latest US capitalist restructuring in the late 1970s, continuing to evolve to this day. The book further explains the deeper material forces giving rise to - as well as now undermining - the Neoliberal policy regime, with special focus given to the crisis of Neoliberalism in the wake of the 2008-09 global crash, Obama's failure to resurrect it, and Trump's current doomed effort to restore it in a new, more aggressive form. Evidence why Neoliberalism is destroying US Democracy concludes the book's analysis.
NEW BOOK
Describes how US federal governments, often in cooperation with the largest US private banks, introduced and expanded central banking functions from 1781 through the creation of the Federal Reserve Act of 1913. Based on an analysis of the evolution of the US banking system - from pre-1781, through the 1787 US Constitutional Convention, Congressional debates on Hamilton's reports to Congress, the rise and fall of the 1st and 2nd Banks of the United States, and through the long period of the National Banking System form 1862-1913, the book shows how central banking in the US evolved out of the private banking system, and how following the financial crash of 1907 big New York banks pushed through Congress the Federal Reserve Act of 1913, creating a central bank which they then managed for their interests.
BOOK
(Click on image) CENTRAL BANKERS is a comprehensive critique of central banks’ policies in the 21st century, explaining why the massive injections of free money to the banking system since the 1970s enabled the creation of excess corporate debt that has led to financial bubbles and repeated crises. The book addresses the growing contradictions of central banking, why they are failing in their functions, targets and tools, and proposes a radical democratization and restructuring to transform them to serve the public interest and not the private banks.
Book:
(Click on image) LOOTING GREECE, A New Financial Imperialism Emerges. This book - Reveals clearly who calls the shots in the Eurozone—the hardliners, not the remnants and political residue of what was once European social democracy, - Follows the negotiations in their excruciating detail as the Troika tightens the screws from 2009 to the present, - Shows how Europe’s financial elite enriches itself on Greek debt, privatizations and financial manipulations, turning Greece into an Economic Protectorate.
Book:
(Click on image): This book offers a new approach to explaining why mainstream economic analyses have repeatedly failed and why fiscal and monetary policies have been incapable of producing a sustained recovery. It explains why the global economy is slowing long term and becoming more unstable, why policies to date have largely failed the trend, and why the next crisis may therefore prove even worse than that of 2008-09.
Book plus DVD and Powerpoint slideshow
(Click on image) Obama's Economy: Recovery for the Few, explains how the weakest and most lopsided economic recovery since 1947 has been the direct outcome of failed economic policies of the Obama administration and US Federal Reserve bank since February 2009. Includes a detailed 'alternative program' in the final chapter. Includes the book, a video DVD presentation, and 66-slide PPT slideshow.
Book
(Click on image) Obama's Economy: Recovery for the Few, explains how the weakest and most lopsided economic recovery since 1947 has been the direct outcome of failed economic policies of the Obama administration and US Federal Reserve bank since February 2009. Includes a detailed 'alternative program' in the final chapter.
Book
(Click on image) A theoretical analysis, with historical case examples, of origins, causes and future evolution of the recent--and continuing--economic crisis in the U.S. and global economy. Includes predictions in 2009 of the inevitable failure of Obama policies and more serious crisis to come, 2013-15.
Book
(Click on image) Seven specific reasons why economic recovery under Obama since 2009 has failed for all but the wealthiest few and largest corporations. The book spells out eight specific areas as an Alternative Economic Recovery Program.
Book
(Click on image) The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush, is a 534 page, extensively researched, nonfiction book that describes the evolution of corporate-government policies from 1980 to 2005 that have shifted more than a $1 trillion dollars a year, every year, from 90 million American middle and working class households to the wealthiest 10% and corporations.
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Dr. Jack Rasmus @drjackrasmus
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