The reopening of the US economy in June—and some states as early as May—has produced a modest economic ‘rebound’. But rebound is not to be confused with economic recovery.

The current rebound is the natural result of the US economy collapsing 40% between March and June 2020. In the first quarter, January-March 2020, the US economy contracted 5%, virtually all of that in March. While the final data for the 2nd quarter is yet to be announced, the US Federal Reserve Bank’s forecasts of US Gross Domestic Product (GDP) show a much greater collapse, ranging from -30.5% (NY Fed district) to -41.7% (Atlanta Fed district). No economy can continue to collapse at that steep a rate quarter after quarter.

Economies experiencing deep and rapid contractions—which is typical of both great recessions and economic depressions—inevitably experience periods of leveling off for a time, or even a slight bounce back—i.e. a rebound. But that’s not a recovery. ‘Recovery’ means a sustained, quarter to subsequent quarter economic growth that a continues more or less unabated until the lost economic ground is ‘recovered’. But a rebound is typically temporary, followed by subsequent economic relapses in the form of stagnant growth or even second or third dip recessions.

Look at the Great Recession 1.0 that began in December 2007. The decline began that month subsequently declined more rapidly in the first quarter 2008, but then bounced back slightly in the 2nd quarter 2008. It then took a deep dive in the second half of 2008 through the first half of 2009, contracting every quarter for an entire year. A short, shallow recovery followed into 2010. But the economy relapsed again in 2011, contracting once more for two quarters in 2011. Another small rebound followed in early 2012 and was followed by stagnation in the second half of 2012.

The reported GDP numbers after 2008 were even weaker, and the relapses more pronounced, before the US Commerce Dept. changed the way it defined US GDP and boosted the totals by $500 billion a year after 2013, retroactive to 2008 and before.

All Great Recessions with an initial deep economic contraction, are typically followed by brief shallow recoveries, cut short by subsequent double dips or quarters of no growth stagnation.

That was true of the Great Recession of 2008-09, which didn’t really end in June 2009, but bounced along the bottom economically for several more years. A similar trajectory will almost certainly follow today’s 2020 Great Recession 2.0 now concluding its Phase One initial deep collapse.

The Phase One deep collapse is now giving way to its Phase Two and what will prove a brief and quite modest ‘rebound’. But that’s not a recovery.

Further economic relapses are inevitable after ‘short, shallow rebounds’ that characterize all Great Recessions. That trajectory—i.e. short, shallow rebounds followed by relapses also brief and moderate can go on for years.
What it means is there will be no V-shape and true recovery in the US economy in the second half of 2020. What there will be is an extended ‘W-shape’ period, the next two years 2020-2022 at minimum. And it may continue for perhaps even longer.

The 1929-30 Great Recession: Anteroom to 1930s Depression

A similar scenario occurs prior to bona fide economic depressions, like that which occurred in the 1930s. The great depression began initially as a Great Recession. US policy makers failed to contain it and it slipped into the Great Depression of that decade as we know it. What precipitates Great Recessions collapsing into bona fide Depressions is the collapse of the financial and banking system.

The Great Depression of the 1930s did not begin with the stock market crash of October 1929, however. The real economy was already slipping into recession in manufacturing and construction sectors in 1929, well before the October 1929 stock market financial crash. The economy contracted in 1930 by -8.5% and continued to contract every year thereafter through mid-1933 as the US economy experienced a series of four banking crashes, one each year from 1930 through 1933. The banking crashes drove the real, non-financial economy ever deeper every year, in a ratchet like effect.

Rebound and growth followed 1934-36. However, that weakened significantly in late 1937 as a conservative Republican Congress and Supreme Court together began dismantling Roosevelt’s 1935-37 New Deal social spending fiscal stimulus programs. As a result, in 1938 the US economy fell back into depression once again. A partial reversing of the dismantling in 1939 produced a return to positive GDP growth that year. But it wasn’t really until 1941-42 that the economy really exited the Great Depression, as US GDP rose 17.7% in 1941 and then 18.9% in 1942. Recovery—not rebound—was clearly underway after m id-1940—i.e. the result of government spending on both social programs and defense that amounted to more than 40% of GDP those years. That was fiscal stimulus. That was recovery.

In other words, the lesson of the Great Depression of the 1930s is in order to end a depression, or stop a Great Recession from becoming a Depression, the government must step in and spend at a rate of 40% GDP.

Prior to the onset of the current 2020 Great Recession 2.0, the US government’s spending and share of US GDP was about 20%. It needs to double to 40% to engineer a true recovery from the current crisis. 5.5% is no stimulus in fact; just a partial ‘mitigation’ of the severe collapse that just occurred. That is, a temporary floor under the deep 30%-40% collapse that would have been even greater.

The 2008-09 Great Recession: The 5.5% Failed Stimulus

In January 2009 the incoming Obama administration proposed a fiscal stimulus recovery package amounting to roughly $787 billion and 5.5% of GDP.

Economists advocated double that. Even Democrat party leaders in the US House proposed another $120 billion in consumer tax cuts. But Obama’s economic advisers, mostly former bankers and pro-banker academics like Larry Summers, argued the US could not spend that much. Obama listened to Summers and reduced the amount to the $787 billion. It proved grossly insufficient. The real economy continued to lag and job losses continued to mount. Supplemental programs like ‘cash for clunkers’ and ‘first time homebuyers’ had to be added.
Even with these post-January program supplemental spending Obama’s fiscal stimulus proved insufficient to generate a robust recovery, as the historical record shows. The US recession under Obama ‘recovered’ at its weakest rate compared to all the prior ten US post-recession recoveries since 1947. The Obama recovery was only 60% of normal for recession recoveries.

The problem with the Obama 5.5% was not only the insufficient magnitude of the stimulus. Its composition was deficient as well. It called for almost $300 billion of the $787 billion in mostly business tax cuts, which were then hoarded by business and not invested to expand output, hire more workers, and generate thereby more income for consumption. Nearly $300 more was in the form of grants given to the states to spend. They too hoarded most of it and failed to rehire the unemployed as was intended. The remainder of the $787 billion was composed mostly of long term infrastructure investment and spending that had little initial effect on the economy’s recovery. As a result of the insufficient magnitude and poor composition of the Obama 2009 stimulus, the US economy fell into a ‘stop-go, W-shape economic recovery for the next six years. US jobs lost in 2008-09 were not recovered until as late as 2015, and the average wages paid for the new jobs was significantly less than wages paid for the jobs that were lost.

The point is: if 5.5% was insufficient to generate sustained recovery in 2009, today in 2020 the effective 5.5% fiscal spending produced by the CARES ACT in March 2020 will prove even less successful. The US economy’s economic collapse today is five times deeper than in 2008-09 and has occurred in one-fifth the time of the 2008-09 event. If a second more aggressive government spending program does not follow in the second half of 2020, then the current tepid economic ‘rebound’ underway due to the reopening of the US economy will certainly fail at generating a sustained recovery. Here’s why the CARES ACT—the main and only stimulus program to date—is only 5.5% and will fail to generate a sustained recovery as the economy reopens with a modest ‘rebound’.

The March 2020 CARES ACT: Failed Stimulus Deja Vu

As of mid-year 2020 the US government spending to date is summed up in the various provisions of the CARES ACT passed by Congress in March 2020, plus several smaller measures passed before and after it as supplements. Its actual spending as of late June 2020 amounts to only approximately a 5.5% contribution to US GDP.

The CARES ACT on paper called for $1.45 trillion in loans and grants to small, medium and large businesses. $500 billion is allocated as loans to large corporations. Another $600 billion to medium sized plus some other measures. And $350 billion in loans, convertible to grants, to small businesses called the Payroll Protection Program, or PPP.

Another $310 billion was added to the PPP small business loan program as banks quickly misdirected hundreds of billions of dollars to many of their ineligible bigger business prime customers which scooped up much of the original $350 billion for small business.

The three business programs combined thus allocated $1.76 trillion in loans and grants.

Another $500 billion was allocated to workers and US households in the form of supplemental income checks of $1200 per adult plus an extra $600 in federal unemployment benefits available through July 31, 2020.

A couple hundred billion dollars more went to hospitals and health care providers in emergency reimbursements before and after the March CARES ACT passage.

That brought the total March CARES ACT fiscal stimulus to roughly $2.3 trillion. However, not discussed much in the media is another $650 billion CARES ACT provided business and investor tax cuts. The tax cuts include a temporary suspension of business payments to the payroll tax; more generous net operating loss (NOL) corporate tax averaging that allows business to use current losses to get tax refunds on prior year taxes paid; faster depreciation write-offs ( de facto tax cut); and more generous business expense deductions. Less than 3% of the $650 billion tax cuts in the CARES ACT went to families earning less than $100,000 per year in annual income.

On paper, the roughly $2.3 trillion CARES ACT amounted to roughly 11% of GDP. But only half of that 11%–or just 5.5—has actually hit the US economy. This contrasts with Germany and other European and Asian countries that boosted fiscal spending stimulus by as much as 15%-20%.

Another 5.5% Stimulus Means Another Failed Sustained Recovery

The 5.5% to not enough to kick start the rebound into a sustained recovery. Much of the 5.5% is already spent to mitigate the 2nd quarter deep contraction and is no longer available as a stimulus in the upcoming 3rd quarter.
All the $1200 checks have been spent already and most of the $600 unemployment benefit boost has entered the economy. The latter expires on July 31. Furthermore, the majority of the $1.7 trillion allocated to businesses large and small has yet to get into the US economy as well.

Of the $660 billion in the small business PPP program, about $520 billion has been spent. Less than $100 billion of the $500 allocated to large businesses, like airlines and defense companies, has actually been ‘borrowed’ by big business. And as of mid-June 2020, none of the $600 billion for medium size businesses had been ‘taken up’ by those businesses. That program only became fully operational by the Federal Reserve in the last week of June, more than three months after its announcement.

Thus far little interest appears on the part of medium and large businesses in the more than $1 trillion loans allocated to them. And as far as the $650 billion in tax cuts is concerned, its effects can be delayed until December 31, 2020, if even then. Given the weak US economy and consumer demand, many businesses will take the tax cuts and hoard them.

In short, more than half the roughly $3 trillion total of government spending, loans, grants and tax cuts provided by the CARES ACT is yet to be committed to the US economy. The official 11% is really only half that at best.

This fact leads to the interesting question: Why have medium and large businesses not take up more of the $1.1 trillion business loans allocated to them?

The $3+ Trillion Uncommitted Business Cash Hoard

The answer is they haven’t because they are already bloated with cash and don’t need or want it. That cash hoard has resulted from several sources in recent months: Large corporations saw the writing on the wall with regard to the virus as early as January-February 2020. They quickly began loading up on cash by drawing down their generous loan credit lines with their banks. That produced a couple hundred billion dollars in cash by March. Then they issued record levels of new corporate bonds to raise still more cash. From March to end of May more than $1.3 trillion in new corporate investment grade bonds was raised by the Fortune 500 US businesses—i.e. more than in all 2019. A couple hundred billion dollars more was raised in junk grade corporate bonds. Still another cash source was raised by businesses suspending dividend payments and stock buybacks to shareholders. In 2019 they distributed $1.3 trillion in buybacks and dividend payouts ($3.4 trillion total under Trump’s first three years in office). So buybacks and dividends suspensions saved at least another $500 billion in cash.

Companies also began selling off and cashing in their minority stock interests in other companies. Furloughing workers to work from home also saved still more cash in reduced facilities, benefits and related costs for many corporations. Tech companies especially benefited from this.

Bloated with trillions of dollars of cash, large and medium sized corporations had little interest in borrowing from the CARES ACT, since the latter came with conditions like the provision that 70% of the loans be spent on keeping workers on their payrolls. They preferred to lay off their workers, and borrow from the credit markets, issue new bonds, and otherwise conserve cash.

A good example was Boeing Corporation. Congress allocated more than $50 billion to Boeing as part of the $500 billion loan program earmarked for large corporations. Instead of borrowing that, Boeing raised $25 billion issuing new bonds and announced layoffs of 16,000 of its workers! Less than $100 billion has been used to date by large corporations under the CARES ACT big corporations’ $500 billion loan allocation. And virtually nothing of the $600 billion to date allocated under the medium size business loan program called the ‘Main St.’ lending facility.

7 More Reasons Why ‘Rebound’ Won’t Mean Recovery

Here are some seven other reasons—apart from the US current insufficient fiscal stimulus—why the US economy will not experience a sustained ‘recovery’ in the next six months, and why instead the US will follow a W-Shape trajectory of weak un-sustained growth followed by economic relapses through 2020-21 (and perhaps even longer):

1.) 2nd Covid-19 Wave Economic Impact:

It is inevitable a number of states will reinstate shutdowns—in significant part if not totally—as the infection, hospitalization, and death rates rise over the summer due to premature reopening of the economy and a growing breakdown of social discipline in adhering to basic precautions like social distancing and mask wearing. The partial shutdowns will. To varying degrees, reduce consumer spending, business investment, and result in re-layoffs of workers. Second wave layoffs in services like leisure & hospitality, bars, restaurants, travel, public entertainment, and even education and health care services will emerge—all negatively impacting household consumption demand. It is estimated that at least half of the states, 40% of the reopened economy, will reinstate some degree of re-closures of business activity in coming weeks and months as a resurgence of Covid 19 impacts the US economy in the second half of 2020 and beyond.

The official US June employment report on July 3, 2020 showed 4.8 million jobs were reinstated. But no less than 3 million of that 4.8 million were recalls in leisure & hospitality, hotels, bars, restaurants, and retail industries. These are the same industries that will be affected most by states reinstituting shutdowns. They are also industries where businesses that have been able to reopen only partially thus far in most cases operate on very thin margins. They are likely to fail in Phase Two of the crisis now beginning, and many closing completely in the second half of 2020 as a result of operating only at half capacity.

The scope of the possible closures is revealed by the recent Yelp survey of 175,000 of its customer business base. During the 2nd quarter, Yelp’s survey found that in May-June only 30,000 of its 175,000 had reopened. More important, its survey showed that 40,000 of its 145,000 that hadn’t yet opened had already closed permanently.

The wave of permanent business closures in the second half of 2020—especially in the leisure & hospitality and retail industries—should not be underestimated. The permanent shutdowns will occur not only due to reduced consumer demand, but to a resurgence of Covid-19 and a second wave of layoffs.

2.) Deeply Entrenched Business & Consumer Negative Expectations

The US economy has been deeply wounded by the deep contraction of the past four months. Both businesses and consumers have negative expectations as to the direction of the economy in the short to intermediate run. Businesses don’t see the conditions for returning to expanding investment, or even returning to prior levels of production and output. With consumer demand clearly in retreat, business expectations of future sales and profits are dampened. Reducing the cost of investing by lowering business taxes or interest rates have little effect on generating more investment, when expectations of profitability—which is what really drives investment—are so low. This is the fundamental reason why business across the board is hoarding its accumulated cash. The same applies to consumers and households. They too are hoarding what cash they have available, spending mostly on necessities only. The evidence is the sharp rise in the household savings rate and bank deposit rates. As much cash is saved and deposited as a precaution that economic conditions may worsen, instead of actually spent. The result is only minimal increase in spending occurs, just as minimal investment. Until negative expectations are somehow reversed, both business investment and household consumption do not rise to levels that result in sustained recovery.

It will take a major event to again shift business and consumer negative expectations, like a vaccine for the virus or a major fiscal stimulus or a program of mass hiring of the unemployed by government. However, none of the above is on the immediate horizon. Therefore negative expectations will continue to dampen any sustained recovery and limit whatever insufficient government fiscal stimulus to generating a modest ‘rebound’ at best.

3.) Business Cost Cutting & Permanent Layoffs

The deep and rapid rate of contraction of the economy over the past four months, and the business expectation of weak recovery, has convinced many businesses to make many of the cost cutting moves of recent months permanent. An example is how some industries and businesses moved their workforces to work from home. It has saved them significant costs of operation—on facilities, maintenance, and some employee benefits. In recessions businesses always find new ways to cut costs that often result in more layoffs and lower wages. Another phenomenon is rehiring and recalling workers back to work temporarily laid off does not occur en masse and all at once. The typical business practice is to recall only part of their workforce and to recall workers more on a part time basis. Not least, the cost cutting and the part time recalls typically results in businesses leaving part of their furloughed work force behind, whose unemployment then becomes permanent.

This second wave of jobless is already beginning to emerge, as businesses downsize in employment after the initial shock to the economy that has already occurred. Airlines are announcing tens of thousands of layoffs. Several other industries are experiencing growing defaults on debt payments and bankruptcies that will result in mass layoffs as well. For example, the oil & energy sector which was a major source of new job creation during the fracking boom of the past five years. More than 200 defaults of companies are in progress. Layoffs are beginning, of a permanent nature not just temporary furloughs or layoffs.
Cost cutting and layoffs translate into less household income for consumption and therefore for generating a sustained recovery.

4.) Deeper Global Recession & Global Trade Crisis

The collapse of the US economy in the first half of 2020 has been accompanied by a synchronized contraction of the global economy. Global economic contraction means US production for export does not recover much in the short run. Offshore demand for US goods & services remains weak. That in turn dampens domestic US investment, employment, and therefore business-consumer spending. Although the US economy is relatively less dependent on exports to stimulate economic growth, exports are not an insignificant contributing factor to US growth and recovery.

More than 90% of the world economy has also experienced deep recession in the first half of 2020. That compares with the first Great Recession of 2008-09 when a fewer 60% of countries were in recession along with the US. Foreign demand for US exports is thus even weaker this time around. Post 2009 China and emerging market economies boomed after 2010 and put a partial floor under US economic contraction by stimulating demand for US product exports; that China-Emerging Market economies stimulus effect on the US economy no longer exists in 2020.

5.) Intensifying US Political Instability

One should not underestimate the potential growing political instability in the USA in the second half of 2020. This instability will occur on two ‘fronts’. One is at the level of political institutions. It is likely the upcoming national elections on November 3, 2020 will be challenged and not accepted by either Trump or the Democratic Party nominee. The growing social instability in the USA and Covid 19 effects on voter turnout, combined with the already widespread voter suppression in various states, makes for ripe conditions for post-electoral crisis should the election be narrowly decided by voters in November. Evidence is growing, moreover, that Trump is prepared to declare voting by mail as fraud and use that as an excuse to throw the election into the Supreme Court—as occurred in the US in 2000. Today Trump, unlike George W. Bush in 2000, enjoys an even firmer majority in the US Supreme Court.

The instability at the level of political institutions in the USA today is accompanied by what appears as growing grass roots civilian conflicts. Street level confrontations between Trump supporters and rising popular movements and demonstrations are not beyond the realm of possibility, perhaps even likelihood.

The political instability has significant potential to negatively impact both consumer and business expectations and therefore dampen both business investment and household consumption even further in addition to causes already noted.

6.) Wild Card #1: Financial Crisis 2021

Intermediate term, in 2021 likely more than in 2020, is the wild card of a financial system crisis emerging that would exacerbate the real economy’s faltering recovery still further. This channel by which a financial crisis might emerge is a growing wave of corporate and state & local government defaults. Massive excess debt has built up over the past decade in business sectors in the US. More than $10 trillion in corporate bond debt exists at present. At least $5 trillion in corporate junk bonds and virtual junk like BBB investment grade. Still more for corporate ‘junk’ leveraged loans. A protracted period of recession and weak recovery will generate a major potential for corporate defaults and bankruptcies. If the magnitude and rate of defaults is too great, or comes too fast, the banking system could very well experience a major credit crash once again.

Industries highly unstable with high cost unaffordable debt, and with insufficient revenues with which to service that debt, include: oil fracking and coal, big box retail, smaller regional airlines, rental car and other travel related companies, hotels and resorts, malls, commercial property in general, and hundreds of thousands of small restaurants and regional restaurant chains. Defaults have already begun rising rapidly in many. Household debt and state and local government debt finds itself in much of a similar situation—highly leveraged with debt amidst collapsing incomes to service the debt as unemployment and wage incomes continue to decline and as tax revenues remain depressed long term due to the weak economic recovery.

The US central bank, the Federal Reserve, is in the midst of an historic experiment to pre-bail out non-bank corporations to forestall the defaults and to flood, at the same time, the US banking system with massive excess liquidity with which to manage the defaults should they come excessively and too rapidly. It remains to be seen whether the Fed’s massive liquidity injections thus far ($3 trillion), and promised (unlimited), will prove sufficient to manage the defaults. If not, the US banking system will freeze up as financial institutions begin to crash as well with the transfer of defaulted corporate debt on to their own bank balance sheets.

In 2008-09 it was the banking system that collapsed first and in turn precipitated a deeper and faster contraction of the real economy in the US. Today it is quite possible the reverse causation may occur in the Great Recession of 2020. But it matters not in a Great Recession which precipitates which first—i.e. the banking system the real economy or vice-versa. The key point is that both cycles—financial and real—feed back on the other in a Great Recession and amplify the downturn in both.

7.) Wild Card #2: Artificial Intelligence Faster Rollout

Another wild card that may emerge with fuller force longer term is the penetration of Artificial Intelligence in business operations. McKinsey Consultants estimated that by 2025 AI would accelerate in its penetration of business practices. By the latter half of the 2020s decade it would have deep and widespread impact on employment and wages, as AI led to deep cost cutting by business. As much as 30% of occupations would be seriously impacted. The essence of AI is to eliminate simple decision making jobs, in services as well as manufacturing.

But it is highly possible that AI will now penetrate even faster, accelerated by business cost cutting and productivity enhancing drives, as a consequence of the current deep economic crisis. The deeper and more protracted the current recession, the more likely business will engage in multiple ways to reduce costs as a means to weather the crisis. AI offers businesses a prime opportunity to do just that. But AI also means a significant reduction in net jobs, especially simple low paid service and retail work. And with the net jobs and wage loss come reduced consumer household demand, consumption, and therefore sustainable economic recovery.

The Case for 40% Government Share of GDP

As previously noted, recoveries from great recessions and depressions require at least a 40% US government spending share of total GDP. Obama’s raised the US government share of GDP to barely 25%, not 40%. The economy accordingly struggled after 2009.

The current 2nd Great Recession 2020, the first phase of which has just concluded in June, is following the same rough trajectory and scenario as the 2008-09. There has been only token fiscal stimulus to the economy thus far from the CARES ACT. Indeed, Congress never considered, at least in the House of Representatives, the CARES ACT was a stimulus bill. It was called a ‘mitigation’ bill, designed to put a partial floor under the collapse of the economy going on at the time in the 2nd quarter 2020. A true stimulus bill was to follow. That’s the HEROES ACT now blocked in Congress by Republican Senate and Trump. What the latter want is to end the unemployment benefits and provide no further income supplement payments. They want to exchange further unemployment benefits for direct wage subsidies to businesses. They want even more tax cuts for business—permanent payroll tax cuts, more capital gains tax cuts, and more business expense deductions. And they are reluctant to provide funding support for state and local governments with accelerating deficits as a result of tax revenue collapse. Should support for state and local governments not occur soon, it is likely mass layoffs will emerge in states and local governments soon.
However, it does not appear so far that anything resembling a real stimulus will get passed with the HEROES Act. The unemployment benefits extension will likely be eliminated. More business tax cuts, should they be added to the $650 billion provided by the CARES ACT, will be hoarded in large part. As will corporate income that would have been otherwise used to pay wages, as the government pays the wages of their workers instead.

An insufficient fiscal stimulus from an eventual HEROES Act, should it occur, will ensure the current tepid ‘rebound’ of the US economy will fail to evolve into a sustained recovery of the US economy. The seven other, additional factors noted above will further prevent a sustained recovery—and indeed may precipitate a subsequent further serious economic contraction. The summer of 2020 is thus a critical juncture period for the US economy.

The US is currently experiencing what might be called a ‘triple crisis’. A health crisis that shows little sign of abating. A deep economic crisis that is still in its early phases. And a ripening political crisis. Never before in its history have three such major events converged. The one of the three that is potentially most manageable is the economic. Health crisis depends heavily on the development of a vaccine. Not much can be done to prevent a deepening political crisis. It will run its course, whatever that may be. But a government fiscal stimulus equivalent to about 40% of US GDP would very likely stabilize the economy and set it on a path to sustained recovery. However, it is highly unlikely that in the current political climate of instability, deep splits within the US political elites, growing grass roots social confrontations, and failure to mount an effective strategy to address the Covid-19 health crisis that the capitalists and their political representatives will be capable of introducing the necessary 40% war time economic stimulus.

Dr. Jack Rasmus
July 6, 2020
Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He hosts the weekly radio show, Alternative Visions, blogs at jackrasmus.com. His twitter handle is @drjackrasmus and his website: http://kyklosproductions.com.
A second wave, or a second surge, in the Coronavirus is underway. Will it translate into a 2nd wave impact on the US economy–i.e. a relapse after a brief and modest rebound as the economy reopens? The topic is discussed below in my Alternative Visions show. (A written print analysis of the same is in progress. Posted soon).




Dr. Rasmus reviews the facts re. surging 2nd wave of virus infections and hospitalizations in the USA and discusses whether it will precipitate a further weakening of the US economy in the second half of 2020 as well. As World Bank chief economist, Carnmen Reinhart, has recently warned: it is important to distinguish between a ‘Rebound’ and a ‘Recovery’. Rasmus explains the reopening of the US economy the past 6 weeks has produced what looks like a ‘rebound’ for historic depths of contraction during the 1st wave of the virus, February-April, but that it is not a recovery. 39m still unemployed by moderate estimates, work hours down 15%, personal incomes up but being significantly unspent, the CARES Act stimulus either already spent by households or loans being hoarded by big corps. amount to no added real stimulus. Fed forecasts for US GDP for 2nd quarter at -30.5% to -41.9% mean a very deep hole for the US economy to try to crawl out of. Rasmus reviews the current late June state of the US economy: consumption, business investment, trade, and government spending that shows a slowing of the deep contraction but a continued contraction nonetheless. Conclusion: despite reopening the economy and a 5.5% GDP stimulus in March the US is not poised for an accelerating ‘recovery’ but a modest ‘rebound’ at best. And a 2nd wave increases probability of another economic relapse in late 2020 or early 2021 if no real fiscal stimulus comes soon.
Evidence is growing from a number of quarters how banks and big corporations are ‘gaming’ the more than $5T combined bailout thus far by Congress (CARES ACT) and the Fed (loans, 11 special lending facilities, etc.). My radio show of friday, June 19, 2020 discusses some of the scams. Also, begins commentary on how the bailout is not really getting into the economy and producing much recovery so far.


Dr. Rasmus reviews the various ways the Cares Act and $2.7T Congress bailout since March has been ‘gamed’ by big business and investors. How big corps have taken the funds and not invested, or refused to take up the loans altogether. The same applies to the Federal Reserve’s $3.3T in loans to banks and investors via its QE and 11 ‘facilities’ to provide free money capital to banks and others. A second theme of the show is Dr. Rasmus explanation that the nearly $5T in Congress and Fed stimulus is not really a stimulus. And the near future appears a further lack of stimulus, amidst a further subsidization of businesses that aren’t really investing or growing the economy. Economic news of the past week is also reviewed re. retail sales, housing, manufacturing, etc.

Over the past week evidence keeps growing that the US has entered a second wave of the Coronavirus pandemic. More than 117,000 Americans thus far have died in just the past three months and more than 2.1 million have been infected. That compares to roughly 460,000 and 7.6 million worldwide. With roughly 5% of the world’s population, the US has about 25% of the world’s virus cases—a testimony to the abject failure of the US thus far to manage the virus.

That failure is perhaps most evident in Trump’s virtual withdrawal from the ‘war’ on the virus and what appears to be his new strategy of letting the states each deal with it as they may and can. Trump’s government is clearly in retreat, concerned only with one thing: to get Trump re-elected no matter what the cost in lives or economic well-being of American citizens.

Trump’s policy boils down to this: totally reopen the economy now, blame the states, World Health Organization and the Chinese for the crisis, declare the rising numbers of infections, hospitalizations, etc. as ‘fake news’, blame a 2nd wave on increased testing, and hold daily mass political rallies from now until November.

Trump is a phony ‘war’ president who long ago dropped his rifle and fled from the field of battle. It’s as if president Franklin Roosevelt on December 8, 1941 left town to sail down the Potomac river on his yacht to contemplate the December 7 Japanese attack on Pearl Harbor, Hawaii—instead of appearing before Congress, as he did on December 8, 1941, to declare war on Japan and rally the country in an all out effort. Roosevelt immediately announced a comprehensive ‘war production act’ to take effect across the entire US economy in just a few weeks. His first executive order was to develop and mass produce penicillin, which was thought impossible but which the US did within just a few months. In contrast, what we got from Trump was a declaration the virus a hoax, a proposal for a bogus hydroxychloroquin treatment that the CDC has since declared dangerous and likely to cause heart attacks, and a public announcement it would all be over by Easter. And today, even more incredibly, Trump has said the virus would go away if we just didn’t test for it so much.

Trump’s only concern is to hold rallies with his conservative red state base that will exacerbate the contagion effect of the virus. As President of only the 30% (his base), he is little concerned about the country at large or the virus ‘war’ that has already killed more Americans than every US war together since 1945. Trump’s only actual order after he announced the activation of the war production act months ago has been to force meatpacking workers back to work else their forfeit unemployment benefits. Work or die! will be the legacy of Trump as a war president!

Trump’s economic legacy, history will also eventually show, is to have pushed for a premature reopening of the US economy in the midst of the pandemic and a resurging of virus infections.

Indicators of a second wave in the US are now rising in no fewer than 18 states, most of which are located in the South and Southwest.

Key indicators of a virus re-surge in the US—like hospitalization rates, death rates, and the test positivity rate—are all on the increase throughout those 18 US states. In some states, like Arizona, the availability of ICU beds is fast approaching maximum capacity. Texas is now experiencing more than 2,247 new hospitalizations per day, after having stated to reopen its economy weeks ago, on May 1. That’s seven straight day of rising hospitalizations per day for the state. Florida experienced a new one day record of more than 1900 cases just this past Friday. Alabama, Arkansas and South Carolina are all witnessing surging hospitalizations as well, approaching max capacity in ICU beds.

But it’s not just the deep South. West coast states—Nevada, Oregon, Alaska, and others—are recording a new rise in cases, reversing a prior downward trend. That fact suggests what’s going on now is more than just a first wave. What we may now have is a simultaneous extension of the first wave into the red states, as well as an emergence of a second wave congruent with that extension.

Meanwhile, scientists have recently confirmed that the Coronavirus has indeed now mutated, and is potentially five times more contagious.

Congruent Developments Fanning the 2nd Wave

It is in this general environment that the US is now rushing toward reopening its economy, especially in the South, Southwest and Mid-west, where a more or less full reopening is entering its fifth week in some cases. Added to the premature reopening are public demonstrations against policy brutality that have grown and continue, overlaid on the economic reopening. Perhaps the biggest factor contributing to the emergence of a second wave, however, has been the lack of public self-discipline in many states, especially the ‘red’ ones where Trump’s political base is concentrated. A rising disregard of social distancing has been the growing norm in many states. It’s not just that many people don’t believe they can catch the virus; it’s also that they just don’t care if they spread if they do come down sick.

Add to all this the example of President Trump himself, who has announced he now plans to begin holding mass election rallies once again—thus sending the message to the public it’s ok to engage in mass gatherings. And if they are to follow Trump’s example, they’ll do so without wearing face masks. As the moronic right wing blogosphere has been saying—and Trump has again picked up—the rising rates of infection are because we’re testing too much. Social distancing may have ‘flattened the curve’ in places like New York City and big urban centers of the northeast. But the general economic reopening now underway, the widespread protests and demonstrations against police brutality, Trump’s personal behavior example to his political base and, probably and most important, the general lack of social discipline by the populace in many regions like the country, have ensured the effects of Covid -19 in the US are now on the rise once again.

And it does not appear any of these sources driving a 2nd wave are about to abate any time soon.

Trump administration key spokespersons, like economic advisor Larry Kudlow and Treasury Secretary, Steve Mnuchin, have both declared publicly this past week the US economy will not shut down and shelter in place again a second time. Trump thus has decided to trade tens of thousands of more US lives for the right of business to return to producing revenues and profits.

Nor does it appear Black Lives Matters protestors, mobilizing against decades of intensifying police brutality, will relent in their public demonstrations.

Nor that a majority of residents of the ‘red’ states will finally acknowledge the need for social discipline and social distancing soon by all indicators when the trend is actually opposite.

Nor does it appear Trump is about to reconsider holding mass election rallies, an action that sends a clear message to the rest of the country that it’s ok to gather in large groups, to abandon social distancing, and mask wearing.

A 2nd Wave Means W-Shape Economic Stagnation…Or Worse

In short, it is increasingly likely that things are about to get worse in terms of US public health. And as that happens, so too will the US economy experience a further negative impact from the virus. A 2nd wave now emerging means not just a further decline in public health, but an eventual 2nd wave of problems for the US economy as well.

What a second wave all but ensures is that the US economic recovery will not be ‘V-Shape’ but will be ‘W-Shape’; that is, a W shape recovery characterized by periods of short and shallow GDP growth, followed by brief periodic economic relapses thereafter. These short, shallow recoveries and relapses may repeat and continue for years to come.

Following such a duration of economic stagnation, a major threat grows that could usher in an economic depression perhaps even worse than the 1930s: should the economic stress building from weak, short and shallow recoveries—i.e. an extended deep economic stagnation for years to come—result in an inevitable flood of business, local government, and household debt defaults and bankruptcies, it will eventually overwhelm the financial system. At that point the short-shallow recoveries and relapses will give way to a more generalized banking crisis that will make 2008-09 great recession appear as a minor dress rehearsal. A next great depression rivaling, and perhaps exceeding, the experience of the 1930s may well be the consequence in 2021 or beyond.

Great Depressions are always the result of mutually amplifying crises in the real and financial sectors of the economy. The current deep contraction of the US economy has yet to experience a subsequent banking-financial system crash. However, the longer the current seriously wounded US economy continues to stagnate, slipping in and out of recessions for years, the more likely it becomes that a wave of business and consumer defaults (i.e. failure to pay interest and principal) on record levels of business-household-local government debt will wash over the economy.

When that happens, banks will have to assume the bad debt of failed companies, households, and local governments on their own bank balance sheets. That freezes up lending to business and households in general. Further mass layoffs then follow. Following the bank lending freeze, the real economy contracts still further as the banking system crashes. A financial crisis converges with the real, deep economic contraction and stagnation already underway. As the two systems—financial and real economy—mutually interact and amplify each other, the outcome is a descent into a bona fide economic depression.

2008-09 Great Recession & 2020 Briefly Compared

In 2008-09 it was the financial side that crashed first, subsequently dragging down the real economy 5%-10% for several quarters and producing unemployment rates of 15%-20%. Thereafter it took six years just to recover the jobs lost in 2008-09 and return to 2007 employment levels. Wages for most working families stagnated or fell for the next decade. Working class family debt ballooned in lieu of real wage gains across all categories: credit cards, autos, mortgage, student debt, installment debt, etc., to almost $15 trillion today. In the first three months of the virus that household debt has risen 16% further, according to the New York Federal Reserve. Federal Reserve policies of 2008-09 quickly bailed out investors and the banks, but did little for jobs, wage and income levels for workers, and working class living standards in general.

At the same time corporate profits nearly tripled from 2009 to 2019. Corporate America in turn awarded its shareholders nicely. Stock buybacks and dividend payouts under Obama averaged more than $800 billion a year from 2009 through 2016. To that under Trump was added a further $3.4 trillion in just three years. That’s a total of more than $10 trillion of income and wealth distributed to shareholders in a decade! In contrast to wage stagnation and decline for the bottom 80% of US households.

This time, in 2020, the causal relationships between the two sectors—real and financial—are reversed. This time it’s a crash of the real side of the economy, at least four times worse than that which occurred in 2008-09!

In 2008-09 it was the financial crash that precipitated, accelerated and deepened the real economic contraction. Today in 2020 the causal relation is reversed, and may prove worse. The real economy contraction and extended stagnation may precipitate a financial crisis which, in turn, could feedback further on the real economy and cause an even deeper and longer contraction. Mutual feedback historically always leads to a great depression. It doesn’t matter which precipitates which. The mutual negative interaction is the key determinant that drives the depression.

In just the 1st wave of Covid-19, from late February through May 2020, working class households lost more than $1 trillion net in wage income—even after $500 billion in expanded unemployment benefits and government $1,200 checks are factored. In contrast, corporations were provided since March with $1.7 trillion in loans and grants plus another $650 billion in further business tax cuts under the March 2020 ‘CARES Act’. And the Federal Reserve US central bank has provided another $3.3 trillion in loans to banks, to corporations, and to investors as well. That’s a 10 to 1 ratio: more than $5.5 trillion to business and only $500 billion to the rest. Most of the subsidy to business is being hoarded, moreover; whereas, most of the $500 billion has been already spent. Neither provide any further real stimulus to the economy in the second half of 2020.

In the 2nd wave on the horizon, moreover, more of the same is yet to come, as it appears likely Congress in its forthcoming ‘HEROES Act’ will discontinue the March 2020 unemployment benefits extension that expires the end of July; will refuse to provide further income supplement checks; and will instead use the ‘savings’ from such programs to provide direct wage subsidies to business. By some estimates, the Government (and thus the taxpayer) plans to subsidize business further by providing a wage subsidy of up to 85% of wages that were previously paid by businesses to their employees. In short, instead of unemployment benefits to workers, it will be wage payment subsidies to businesses.

In short, a 2nd covid-19 wave will coincide with an already seriously depressed US economy with little further real economic stimulus in the pipeline. That contrasts with the great recession of 2008-09, which hit a real economy that was still growing strongly when recession hit late 2007.

The Great Capitalist Experiment: Pre-Bail Out the System

So far the central bank of the USA, the Fed, has staved off a banking crash by pumping $3.3 trillion into bankers and investors, in effect pre-emptively bailing them out before a crash actually occurs! Congress has provided another $1.7T so far to pre-bail out the non-banking side of the business economy with loans and free grants, plus another $650 billion business-investor tax cuts. The Fed has promised even more ‘free money’ to banks & businesses. And Congress has signaled it is prepared to provide still more to business—if not to workers, consumers, and state and local governments. (For example, the forthcoming ‘Heroes Act’ proposes to end $1200 income checks and $600 supplement unemployment benefit checks to workers and, instead, take the money and give it to business in the form of government paid wage subsidies!).

An historic policy experiment is thus now underway in the US economy. By pre-emptively bailing out the banking system with trillions of dollars of liquidity (money at low or no interest rates) the Fed is attempting to ‘fatten up’ the banks with record excess money reserves on hand to enable them to absorb the defaults, bankruptcies, and deflation that are coming—even before it occurs. The Fed is also, in another historic first, attempting to pre-bail out broad sectors of non-bank businesses in the US with $1.7T in loans and grants. Something its own legislative mandate actually prohibits. That non-business bailout is designed to reduce the flood of defaults and bankruptcies even before they ‘hit’ the banking system. So the Fed (with assistance of the US Treasury and Congress) is bailing out the capitalist system today even before it crashes. Whether it will succeed in doing so remains to be seen.

One thing is certain, however. The Capitalist state in the 21st century in the USA today is engaged in a massive subsidization of Capitalism itself on a grand scale never experienced or even envisioned before. It is flooding the system with free money and liquidity (loans, grants, tax cuts, QE, corporate bond purchases, etc.) in an attempt to prevent another ‘great recession’ of 2008-09 that would prove to be an even ‘greater recession of 2020-21’—or perhaps morph into the first Great Depression of the 21st century.

A second virus wave will certainly test the experiment of a massive pre-bailout of the system now underway. How broad and deep the second wave goes is yet to be determined. Similarly the specific economic ‘transmission mechanisms’ and ways in which the health crisis impacts and exacerbates the current economic crisis further.

But even if there is no second wave of significant dimension in coming months, the independent dynamics of the current crisis will eventually precipitate a banking-financial crash nonetheless. It will just take longer. For the US (and global) capitalist economy is seriously wounded, fundamentally. It was already slowing and in decline in the US and globally, in certain sectors of the economy. A second virus wave will accelerate the process of weakening and decline, as it did the first wave. At some point that will inevitably translate into a financial system crisis once again as well. At that point, a new phase, more serious, of the crisis emerges: i.e. the financial crisis occurs, more likely than not drives the seriously wounded ‘real economy’ into a deeper contraction. No longer mere stagnation and W-Shape. Now a clear descent into bona fide economic depression similar to the 1930s, or perhaps even worse.
Until the financial banking crash takes place, the US economy stagnates more or less in a W Shape trajectory. Short shallow recoveries are followed by short relapses and returns to recessions. This will occur regardless of whether a significant 2nd wave of the virus impacts the economy.

The Covid-19 effect, whether first or second wave, is not the sole factor driving the economy and the current economic crisis. Forces have now set in motion a continuing economic crisis, virus or no virus. It’s just a matter of time and place before the economic crisis enters a new and even more unstable phase.
It’s not a Covid-19 economy. It’s a capitalist economy, the instability of which has been rendered even more unstable by the current Covid-19 health crisis. And that instability is not going away should the virus disappear which, of course, is not about to happen either.

Dr. Jack Rasmus
June 15, 2020

Dr. Rasmus is author of the recently published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. He blogs at jackrasmus.com and hosts the weekly radio show, Alternative Visions. His twitter handle is @drjackrasmus.

Following is the 3rd excerpt from my late April interview with Konrad Stachnio of Poland for his forthcoming volume on the current pandemic crisis from a European perspective. In this concluding segment, Konrad asks my views on subjects like the next global depression, the future of digital money, financialization, my response to corporate ideologists’ interpretations of the crisis, and on left intellectuals’ views like Slavoj Zizek.


(What’s A Depression?)

INTERVIEWER: Would you agree with the statement of Gerald Celente, who said that we are going into not a recession, but a Great Depression? This scenario like before the Second World War – we have trade wars, we have currency wars, we have Great Depression, and then you know the end of the story. What do you think about this?

DR. RASMUS: Back in 2010, in my first book on the crisis in 2010 called Epic Recession: Prelude to the Global Depression, I said you’ve got to distinguish between what’s called “normal” recessions and great recessions (or what I called epic recessions). I didn’t like the word “great” because that term is being thrown around without a definition. Economists like Paul Krugman were saying “Oh, great recession. It’s worse than normal but not as bad as the 1930s.” That’s just economic analysis by adverbs. It doesn’t tell you anything.

So in my book in 2010, I distinguished between what’s a normal recession, what’s a great or epic recession, and what’s a depression, both quantitatively and qualitatively. I pick up that theme again in my latest book, The Scourge of Neoliberalism, published just a couple months ago.

What’s the difference? Normal recessions are recessions that aren’t associated with a financial crash. They’re just a short contraction of the real economy. You get overproduction in one area, or maybe you have a policy error like occurred in 1981 where Reagan purposely slowed down the economy to make the average household pay for the cost push inflation from oil and the embargos. Those are normal recessions.

2008 was not normal in that you had a banking crash. A banking crash will make the real economy contract faster and deeper, and then that faster and deeper contraction will feed back onto financial instability and exacerbate that in turn still further. So you got the financial and the real economy both following each other down deeper, which means it takes longer to recover from it. That’s a great recession, where the banking crash is stopped at one event. Subsequent banking or financial crashes are prevented. The banks are quickly bailed out and the real economy and jobs slowly, very slowly recover over the course of years.

Now, take the Great Depression in the 1930s, is still different from a normal recession and a great recession. What causes a depression is a series of financial banking crashes that come one after the other in a relatively time frame. That drives the economy down and ratchet deeper, deeper, every time you have a financial crash. And that’s what happened in the 1930s.

The Great Depression of the 1930s, as I pointed out, was not just one precipitous falling off a cliff. It was a series of stabilizations and contractions that went deeper and deeper as the banking system got worse and worse, and series of banking crashes in turn fed back on the real economy that got worse and worse, and defaults in the real economy caused even further crashes on the banking side, and you have a mutual, negative interaction between financial cycles and real cycles.

Mainstream economists don’t understand financial cycles, and they don’t understand how financial cycles interact in a mutually amplifying way with real contraction in the real economy and vice versa. In my 2016 book, Systemic Fragility in a Global Economy, I presented in the final chapter a theoretical proposal and hypothesis of how those two cycles interact with each other and exacerbate each other in a great recession downturn and even worse in a great depression.

So whether we’re going to get into a great depression after 2020 will depend on whether we have a bona fide banking financial system crash that occurs later this year or after, and whether they can stop that banking-financial crash. The Fed and other central banks are already putting out trillions of dollars to prevent that now. To pre-emptively bail out the banks and the financial system. But if those trillions don’t work and we have a crash anyway, then what the hell are they going to do? Then they’ll really be at the ‘end of their ropes’.

Can they stop it? It’s a 50-50 proposition and we’ll see if we have subsequent rolling financial banking crashes. Then you will have your great depression.

(The Future of Digital Money)

INTERVIEWER: Not a good scenario at all. What about digital money? Do you think that we’re going to have a scenario where the central banks will introduce some sort of digital money instead of paper money?

DR. RASMUS: Yes, they will. Central banks will introduce digital currency – if anything to hold off the private sector from creating a money supply by creating their own private digital currency. The central banks and the governments will not allow cryptocurrencies to supplant the regular monetary system. They’ll prevent it. They’ve already taken steps to do that in terms of regulation and taxation and so forth.

But they’ll allow cryptocurrencies, bitcoins and everything, as a kind of speculative play, kind of like gold futures or valuable paintings or something like that. It’s a pure speculative play. They’ll allow that. And the banks will play a role in collecting fees on all that. But they won’t allow it to be a true digital currency out of the control of the state capitalist government.

So central banks eventually will introduce their own digital currencies, and it will be very slowly and very controlled. But being electronic and digital, whether they can really control that in the long term remains to be seen. I’m not so sure.

INTERVIEWER: That’s an interesting statement. But what about Chinese? They’re introducing their own currency, like crypto. What do you think about this?

DR. RASMUS: All the major monetary countries are going to be dabbling and experimenting in this. But the Chinese and the Russians have another motive here, and that is to get out from under the dollar and the U.S. dominated international payment system. It’s that payment system and the dollar that are the crux of the U.S. economic empire. The U.S. global economic empire cannot function unless the dollar is the dominant reserve trading currency and unless the U.S. banking system is able to control it all and is at the center of international payments system.

Because it’s the international payment system that is dominated and controlled by the U.S., it allows the U.S. to see who’s violating the sanctions. That’s why this move by Europe to establish INSTEX, it’s called, to trade with Iran, is so important. If that takes off and establishes itself, then of course the Russians and the Chinese may join it. Or the Chinese and the Russians may establish their own INSTEX-like payment system and bring other emerging markets into it.

This is all a fundamental challenge to the U.S. global empire, and the U.S. throwing sanctions at everybody has just accelerated the whole process of moving toward an alternative. It’s one of the most damaging aspects of Trump’s trade and sanctions policies.

(On Financialization & Future of Neoliberalism)

INTERVIEWER: Do you think that we are facing the last days of globalism and the neoliberal system right now?

DR. RASMUS: In my January 2020 book, The Scourge of Neoliberalism, U.S. Economic Policy from Reagan to Trump. One of my conclusions was that what you see with Trump is neoliberalism on steroids, neoliberalism 2.0.

I define what neoliberalism is in terms of policies and in terms of structural change in Capitalism; it’s, a very materialist kind of explanation. I think there’s a lot of ideological fluffy notions floating around about what neoliberalism is, and only partial explanations. Austerity is not just neoliberalism. Neither is deregulation and privatization. Neoliberalism is a lot more.

Neoliberalism is those sets of policies in four distinct areas – fiscal policy, monetary policy, industrial policy, external policy, trade, currency exchange rates and so forth – that was developed in the late ’70s, early ’80s, by Britain and the United States as a response to the crisis of the 1970s. Neoliberalism is what the U.S. instituted to buy itself decades more of economic dominance, economic hegemony. It was the American-Anglo solution to do that, to extend hegemony. USA as the dominant partner; UK as the junior partner.

And neoliberalism has always meant globalization and financialization. Without the financialization of the U.S. and the global economy, you would not have globalization in other ways because that financialization had to occur in order to allow the globalization in other dimensions. So the two are both sides of one coin. I define financialization quite different than most others have, whether left economists and others. I’m not going to go into that definition or review that book. I went into it in depth in my ‘Systemic Fragility in the Global Economy’ book published in 2016.

But basically, one of my conclusions was neoliberalism grew and expanded very aggressively in the U.S., through Bill Clinton and George W. Bush, but it hit a wall in the 2008-09 crisis. Obama could not put it back together again fully because of the crisis. Those neoliberal policies were undermined by the natural evolution and change of capitalism itself from the late 1970s through the present. Neoliberalism served to help restructure capitalism in the ’80s and ’90s very successfully in response to the 1970s crisis decade, but then these same neoliberal policies created after 1980 have become a drag on the further development of capitalism in the 21st century. Neoliberalism no longer works, so capitalists will replace it with some other policy mix that better suits its needs in the 2020s decade and beyond.

So the contraction between neoliberal policies and capitalist structure began to emerge, and with 2008-09, the contradictions revealed themselves more fully. Trump represents a futile attempt to restore neoliberalism, in a new virulent, aggressive form. The trade wars, for example, or what he’s doing on the external policy side. The massive tax cuts on the fiscal side. The massive deficits created by war and tax cuts. Going after the industrial side with more privatizations, deregulations and destroying unions and so forth.

But I predict Trump won’t succeed. I predicted in one of my chapters at the close of my 2020 book on Neoliberalism that changes that are coming within the structure of capitalism and at the material base of capitalism are undermining neoliberalism and that it will fail early in the 2020s decade. It may be failing now right before our very eyes in the wake of this virus thing.

The question then becomes, what’s going to replace it? That will either be, in my view, a move to a more progressive kind of economic capitalism, more like the New Deal of the ’30s, or it may evolve into a more Neofascist corporatist kind of economy in the next decade. It could go either way. But it’s not going to be neoliberalism as we’ve known it from Reagan through Trump. It’s going to be something else, either much worse or better. That’s a political solution question.

(On Slavoj Zizek & Left Intellectuals)

INTERVIEWER: Let’s hope for the better. I think we’re getting to the end because we have 48 minutes right now. The last question: would you agree that normality will never return? Let’s put it very simply. This is a statement from Slovenian philosopher Slavoj Žižek, that normality will never return. Do you think that we’re going to face the collapse of the European Union soon? What do you think about that? For example, we were talking about the new economic system. Right now, for example, Žižek and other people are proposing – I mean it – they’re proposing some sort of communism for the economy.

DR. RASMUS: You’ve got three questions there, right?

INTERVIEWER: Sorry for that. I tried to compress everything. [laughs]

DR. RASMUS: All right. Normality. What’s normal? Nothing is normal under capitalism. Capitalism is always dramatically changing. You would say in 1980-82, “Are we going back to the ’60s and ’70s? That’s what was normal.” No. Neoliberalism was not the normality of the preceding decades.

So the decade that’s coming and after is not going to be normal in the sense of returning to neoliberal economy and political institutions that were a reflection of that. No, it’s going to be a new normal, whatever that is. Because capitalism is always changing, and it’s changing at a more rapid pace here in the 21st century than ever before.

In the Neoliberalism book just published a few months ago, I point out the evolution in labor relations and markets and in the character of exploitation that’s coming with artificial intelligence. It’s going to destroy 30% of the occupations, and already we have a third or more of the people working in contingent jobs, part-time, temp jobs, gig work where they can hardly survive. Well, it’s going to get even worse with AI.

All these simple decision-making jobs in services and manufacturing are going to go away, and it’s only going to be highly professional technical jobs that are going to be able to maintain a standard of living. Professional jobs and jobs that are oriented towards making profits and generating greater productivity for capital. The rest are going to be even worse off than they are today. So the new normal is going to be very difficult next decade, you might say.

As far as Žižek and communes and so forth are concerned, you’ve got to beware of intellectuals. Left intellectuals not just those on the right. They create all these fantasies off the top of their head because they aren’t rooted in the reality of average working people. He has a lot of good ideas; I’ve read some of them, ideology and so forth, but some of the stuff they come up with is really crackpot.

INTERVIEWER: Yeah, I must admit. [laughs]

DR. RASMUS: It comes off the top of their head. It doesn’t come from the real experience of real people. But you can’t blame them because all they’ve got in their ivory towers is the top of their head.

(On Tim Draper & Corporate Ideology)

INTERVIEWER: Can I just ask you something? Because this is quite important. I was talking with this guy from Silicon Valley, Tim Draper, billionaire from U.S., and I asked him, “What about these poor people who cannot adapt to this new system, this AI system where there is no job for them?” He said, “Very simple. They have to just adjust themselves to the new economic system and that’s all. Like always, like before. Like in the ’30s, like all the time in history.”

DR. RASMUS: A very callous response.

INTERVIEWER: But maybe it is that simple. I just don’t know.

DR. RASMUS: Well, I’m not so sure the young people and millennials, Gen Zers coming behind the millennials, are going to accept that. Already, a majority of the United States say they’re socialist. They don’t know what that means, but to them it means “not the above.” They’re becoming very anti-capitalist.

People like Draper and others better watch out with that kind of an attitude because people just aren’t going to accept that kind of an attitude. In other words, “I’ve got to lower my standard of living? Instead of working a part-time job at minimum wage, I’ve got to work three part-time jobs, or I’ve got to live with five other people instead of one other person in an apartment, or I can’t afford to have a family or afford to have kids?”

Young people see their whole life before them, and that scenario is not going to be acceptable to them. At some point they’re going to really be upset, and we’re getting closer to that point. I’m not saying it’s around the corner, but that’s unacceptable to say “I’m condemned to a life of a kind of indentureship, of low pay, no benefits, whatever.”

Others are saying people have to have some kind of universal basic income. Well, something like that might happen here when people start rebelling. I don’t know. It’s going to take something like that, because the capitalists simply aren’t going to give it to you. Whether that happens remains to be seen.

But I think that’s a very arrogant, elitist, egotist answer, condemning millions and millions of people to a very unsatisfactory life. I don’t think they’re going to accept it. I think he’s playing with fire with that. But that’s how they feel. In the U.S. here, an expression of that is what’s going on now with “Maybe we should accept more deaths. It would get the economy going. That’s more important.” In other words, “My revenues are more important than Grandma and Grandpa and your Uncle Ralph dying. That’s more important.” That’s a capitalist attitude. It’s them and us.

The rest of us aren’t really considered full human beings by these people. You’ve got to understand how they think. I worked in their ranks for 19 years. I know how they think. Before that, for 13 years, I was a union organizer and a local president and a strike leader and union contract negotiator. So I’ve seen from both class sides how people think. Their different sets of values, about life and other people. Capitalists think different, very different from the rest of us. Their life values are also fundamentally different. Draper is a good example of the way these guys think. If you can’t make money for them, then you’re less human than them in their eyes. They don’t say it publicly or direct. They’re too clever for that. But that’s really how they think and feel, privately and off the record.

(On Financial Imperialism & Greece)


DR. RASMUS: And what about Europe and the European Union? Well, that’s a 50/50 proposition. I thought it was going to unravel in the last 2011-13 crisis there, and I saw this new internal imperialism emerging where Northern Europe was exploiting the hell out of the Southern Periphery and a new kind of extraction of value was going on at the state to state level.

Greece, of course, was the most extreme expression of that, and I wrote this book, Looting Greece: The New Financial Imperialism Emerges, published in 2016. They stabilized that by beating down the Greek opposition in the Syriza party and making it capitulate. I thought it would result in Greece and others splitting from the Eurozone monetary union and currency, and I still think that’s a possibility. Unless the leadership of the European Union realizes it’s going to have to spend more of its wealth in maintaining stability and raising the standard of living on the Southern Periphery as well a split is inevitable from it. Maybe Italy instead of Greece. If it doesn’t adjust its policies, and it has to do that fiscally, then the Eurozone is doomed eventually. A union based on a currency and single monetary policy cannot prevail. But a greater emphasis on fiscal policy and sharing the wealth in the Eurozone will never happen. German banks won’t allow it to happen. Then that’s the future of Europe, one way or the other. We’ll see.

[End of recording and interview]

This past April, in the midst of the surging pandemic and collapsing US economy, I was interviewed by three sources in Europe for a US perspective on the events. The following is the second part of an interview with Polish social commentator, Konrad Stachnio, that will appear in a collection of interviews later this summer. Subsequent interview topics with Stachnio, and others in April, will be posted here in coming weeks as well.

(April 2020)


What do you think about China? Do you think China will be the biggest winner in this whole scenario here? For example, in terms of economy.


In terms of its economy, China has the ability to redirect investment into public investment a lot quicker and with less internal political opposition than the United States does. We’ll see whether it can do that. But China is very much an export-oriented economy, and the global economy has nearly collapsed. Global GDP is not coming back quickly. The supply chains are really broken, and it’s going to take quite a while to reestablish those supply chains. So globally, there’s no global V shape recovery scenario either.

Both Europe and Japan, the other two advanced capitalist economies were already in trouble economically in 2019, were stagnating or in recession, largely because they too, like the U.S., relied primarily on monetary policy as the main stimulus after the 2008-09 crash and eschewed fiscal policy. They all engaged in austerity fiscal policy. Again, that’s because the bankers are were in control of the politics and the policy since 2008-09.

Monetary policy means “give the money to the bankers first, and then we’ll decide how much we want to dribble down to the rest”; whereas fiscal policy means “give it to the household, the consumer, and they will then recover the banking system by spending.” Bankers and their bought for politicians don’t like fiscal policy because its bottom-up. They like top-down monetary policy. Europe and all the advanced capitalist countries were following this sort of policy after 2009, but now that policy has come to a dead-end. In Europe and Japan and the U.S., it was all the same but it just couldn’t be taken any further by 2019. As I say in my book about central banking, monetary policy was at a dead end and the central banks at the end of their policy rope.

It couldn’t be taken any further in the U.S. either when Trump came into office. Trump artificially pumped up the economy with his massive 2018 tax cut, but only artificially. Most of that $4.5 trillion (over a decade 2018-27) tax cut went into the financial markets and we had this big bubble, a 25-30% rise in the stock market, $3.4 trillion in stock buybacks and dividend payouts under Trump, and trillions more in corporate debt issuance due to low interest rates. And that bubble collapsed in a matter of weeks in 2020. That collapse, by the way, stabilized recently, but it’s going to go down again. This is a dead cat bounce, a classic bear market rally, as they call it in the financial markets.

So monetary policy is the primary lead policy for capitalism in the 21st century, and it has failed. It couldn’t go any further, and finance capitalists running the policy show don’t like fiscal policy. But now they’ve got to engage in fiscal policy. And now they’re going to pay a price with these massive deficits and debts they’ve run up in recent decades due to trillions of dollars in business-investor tax cuts and war spending, and no one knows how much that’s going to cause an even greater overhang and a drag on the economy after this whole virus thing runs its course.

But Europe is worse off than the U.S. Same with Japan. And now emerging markets are going to really take it in the ear, as they say, particularly countries whose currencies depend on global trade in commodities and oil. They’re already in a deep crisis, and the IMF lending a trillion dollars is not going to cover defaults in sovereign debt that are coming You can see the dimensions of the coming crisis in emerging market economies in Argentina and places in Latin America.

So the global economy is going to be very, very weak in the months and years immediately ahead. If China depends on sales into the global economy, that’s not going to recovery very fast for China. In summary, how much is that lack of export production going to play on China’s economy? China can probably make it up in other ways, but there are limits to that too. We’re going to see. China’s probably better off than the other emerging economies but its economy is not immune from broader global developments by any means.

But if there’s another wave of problems with the virus in China, then all bets are off for China recovering too. And you’ve got to remember, China engaged in massive fiscal spending after 2009. 15% of GDP, which pulled up the emerging markets selling commodities to China as well after 2012. Emerging markets in China did not suffer as much as Europe and North America and Japan after the last crisis.

But that’s not going to happen this time. If China cannot sell more goods into the global economy and trade, It’s not going to buy us much commodities from the emerging market economies, and therefore you’re not going to get that recovery in emerging market commodities or in China as sharply as occurred after the 2008-09 great recession.

I think there’ll be some recovery in China, but it won’t be very robust. It won’t be enough to pull up the EMEs, and it certainly won’t be enough to pull up the Western advanced economies.


Do you think that we are going in the direction of some sort of class war in Europe, or maybe even in the U.S., some sort of revolution? Because to be honest with you, I don’t see any other way to deal with this problem for people on the street who have nothing right now.


Yeah, I think the leadership of the western capitalist countries is grossly underestimating the discontent that’s going to occur in the working classes at the median income levels and below, in particular. They’re really going to be left behind this time. How long can they go on getting partial income support?

Or those who are working under really terrible conditions, very unsafe, unhealthy, dangerous conditions out there during this virus crisis and collapsing economy. It’s not just doctors, nurses, and first responders. The people who keep the utilities going, the people who keep the trucking and the delivery of food and necessities going, the people who keep running the warehouses and so forth – if that food delivery system breaks down, you’re going to see something very apocalyptic, I think, very dangerous.

To people who are working overtime and under hazardous conditions the politicians are saying, “You’re our heroes.” Yeah, well, that’s not enough. That’s not going to cut it. Why aren’t they getting hazard pay? Why aren’t they getting adjustments on their mortgages, rents, and so forth? We need to reward those people with extra compensation, who still have to work to keep society from collapsing. At a certain point people are going to realize, “Hey, we’re on the shitty end of this stick. They’re taking care of themselves, the bankers and so forth; what about us?” You’ll start seeing a lot of wildcat strikes in protest. Workers are going to start getting angry about having to choose between their lives, the lives of their families, and their livelihoods and jobs.

I’ll tell you one thing. Revolution isn’t around the corner for one very important reason. People engage in revolution when they have an organization that leads the way. Just having discontent over conditions is not enough. That will erupt in discontent like the Yellow Vests or Occupy Movement and so forth. That dissipates. You need an organization. You need a political party that will really represent them.

The problem is, you’ve got Social Democratic parties, whether they’re in Europe or the Democratic Party in the U.S. or whatever, who don’t really represent the working classes anymore. They threw a few crumbs their way, but they don’t rely on the working classes. They compete for the middle class, the professionals, and so forth, and the business class and small business and so forth. I don’t believe they will come up with a program and a solution that people will be able to get behind.

Already, most working class folks distrust all the political parties. Certainly in the U.S., they distrust the Democrats almost as much as the Republicans. But until you get a real organization that people feel that they can get behind, that has the answers to the crisis, you won’t really have a political revolution, I believe. It takes organization.

That’s the number one question before us today. The unions don’t seem to be that aggressive in moving in that direction. They’re tied to the Social Democratic parties and they do whatever the Social Democratic parties tell them to do. So I don’t see them leading it. I don’t see a new kind of resurrected Labor Party here or anywhere really doing it.

What will? I don’t have the answer to that. But I do know that that’s what must happen. I’m not advocating any particular organization out there. I don’t see anything that fulfills that task. But it will come. People will demand it when they see that the ruling class here has no solution to the crisis except to lower their standards of living even more to protect those who have the money. That’s the only solution that appears to be occurring. People will at some point say, “That’s not good enough.”

For my 15 min. ‘quick take’ on last friday’s job numbers in general, and in particular on the Labor Dept.’s 3%-5% unemployment under-reporting ‘error’, listen to my May 8 radio interview with ‘By Any Means’ radio show. My comments as well on the connection between rising unemployment & income inequality and the deeper significance of the rising protests against police brutality.


This past April, in the midst of the surging pandemic and collapsing US economy, I was interviewed by three sources in Europe for a US perspective on the events. The following is the first part of an interview with Polish social commentator, Konrad Stachnio, that will appear in a collection of interviews later this summer. Subsequent interview topics with Stachnio, and others in April, will be posted here in coming weeks as well.

(APRIL 2020)

Interviewer: I would like to speak with you about this pandemic and the long-term scenario for Europe and United States, China. What will happen? Because we are facing a really serious situation.

Dr. Jack Rasmus: Well, let me take that question on. What will it look like after, or what will happen between now and after? There’s really a couple phases here. We’re right in the middle of it right now, in its more intense contraction phase, and we now are seeing the real economy everywhere virtually shutting down except for basic necessities.

That’s true in Europe, that’s true here in the U.S. It looks like same for much of Asia, although it looks like Asia may be coming back in terms of activity a little bit. Although it’s not clear whether that will be temporary too. There are reports of a second wave of infection beginning to occur in Asia. It’s not verified yet, but there’s some indication of that. Of course, the big risk is that if you go back to work too soon and more people get infected, then you do have a second wave.

There are forces in the U.S., I’m sure in Europe too but especially in the U.S., that want us to go back to work because they don’t like the fact they’re not making any money, and they really don’t care about how many workers get sick and die because they’re just, like good capitalists, thinking of their own bottom line here. I’ve heard there are thousands of workers in the US meatpacking industry that are now being infected.

It appears these business forces have had some influence with Trump for a while now, and Trump was talking about “We’re going to be back by Easter,” but then the reality and the science overwhelmed the ideology and the pursuit of profit and he said no by Easter, admitting we’re going to lose hundreds of thousands of people here, even if we do the best possible.” All we can do is mitigate, not stop the virus at this point. In other words slow down the process. But Trump will change his mind again about opening the economy. He constantly flip flops.

I don’t think there’ll be any real solution to this health crisis, and thus to the disruption of the economy, until they get a vaccine or some sort of treatment that clearly cures people functionally so that they could go back to work. Until you see the medical scientific solution, the pressure on the economy is going to continue. Maybe not as severe as the initial effects that we’re seeing now, in especially Europe and the U.S., but it will continue even after that. And the economy will not really fully recover, I believe, until you really have the medical solution.

I strongly disagree with all those Pollyannas who say that it’s going to be V-shaped recovery. There’s not going to be V-shaped recovery by any means. Why? Because there’s been great psychological wounds inflicted on both the psychology and expectations of consumers and businesses. That’s not going to go away very quickly. You can provide income protection to some extent; that’s going on now. But the $2.2 trillion U.S. ‘CARES’ bill just passed by Congress is just a mitigation, as even they’re now admitting, just putting a floor under the economic collapse to some extent for a couple of months at most.

But they’re going to need an even bigger stimulus bill by May/June if they want to get through the rest of the summer. Whether that happens is going to be determined by a political fight in the U.S. because, again, business interests, capitalists, do not want to drag out the economic crisis as much as we’ll probably have to in order to save lives. So there’ll be a big fight over that next stimulus bill coming in May or June.

I’ve written on my blog several articles in February-March that said, look, if there is truly a war with the virus going on – and there is– then we’re going to have to go to a war budget in the U.S. similar to what it did in 1942. If you look at 1940-41, the U.S. Government spending before World War II was about 10% of total GDP. In one year, 1942, that rose to 40% by the end of that year. And at one point in ’44, government spending was 70%.

That was a war mobilization in ’42, and I’m arguing that we have to go to 40% of again. If the government spending before this crisis in 2019 was roughly $4.5 trillion and that was 21% of GDP, we’re going to have to add another $4 trillion in direct government spending – not in business loan bailouts of bankers or investors. That’s done by the central bank, the Federal Reserve and not part of direct government spending. And not in the form of more corporate tax cuts, either, because that’s also not going to have much effect stimulating the economy in present conditions of severe contraction. It has to be direct government spending to households and small businesses.

We have some of that direct spending started but it’s not sufficient. The CARES ACT’s $500 billion to workers in the form of extended employment benefits and an initial round of household cash injection and checks, plus $367 billion to small businesses in grants, and loans that will probably convert to cash anyway. But all that’s just a 6- to 8-week solution. We’re going to have to have an even more massive stimulus, direct stimulus by the government, equal to 40% of GDP. And that has to come soon this year. Whether that happens is a political question. We’ll see.

But that’s what I believe has to happen. We have to go on a true war mobilization footing with government spending taking the lead because the psychology of investors and businesses has been so hammered – and consumers too – that even under the best of circumstances – let’s assume the very unlikely scenario that by June this health crisis element is over–the economy will still be wounded and businesses will not invest. They will be very, very cautious. They will not bring everybody back to work. Banks will not lend their own money very readily either.

Look, after the last crisis in 2008-09, we had a decline in bank lending and real investment for years after that, continually. So the banks will not lend except to the very safest, biggest customers. You’re not going to get investment snapping back. And in fact, investment wasn’t doing so good in the U.S. before the virus hit anyway. For 9 months in the last year, 2019, we had a contraction in real capital spending going on. We had a 6 month manufacturing recession. We had consumers that were showing signs that they were tapped out on credit and debt. And we had a trade war that was holding back growth as well. The real economy was therefore quite weak in 2019, not robust and strong, as Trump likes to say.

And all that was happening on the eve of this. It was not a strong economy, and this crisis has simply precipitated and accelerated the collapse. It was already slowly slowing down. And in Europe, the same scenario. Ditto Japan in late 2019. But now the virus effect has exacerbated and accelerated it all. It’s telescoped it, and now we’re in a deep, deep downturn.

The deep and rapid contraction of the real economy is going to affect the psychology of investors and businesses and the spending by consumers and households. Some of the money by the stimulus bills to date will be hoarded, because both businesses or consumers don’t know if this thing’s coming back, how long it’s going to go on. Households will buy necessities, but that’s it. They’re not going to go out and buy new homes, cars and all the rest at levels they had before. They’re going to sit on much of the bailout money; they’re going to hoard it. They’ll use some of it to pay down some of the debt they’ve accumulated to date, and businesses will spend it on stocks & bond investments, but they’ll mostly hoard it. Same for many households that will still have jobs,

As economists like to say, the multiplier effect from the CARES Act bill is going to be very, very low here for government spending. Businesses, what are they going to do? They’re going to hoard it. Banks are going to hoard it. They’re going to keep it for future debt payments, maybe, because they’ve also borrowing big time, drawing down their available bank loan credit lines and issuing record corporate bond debt. Businesses were drawing down their credit lines by hundreds of billions in February and March, as this thing began to unfold. And issuing hundreds of billions of dollars in new corporate bonds.

Record levels of corporate debt occurred in February because corporations and businesses are gathering in all the cash they can, in this dash for cash. In economist terms, it’s the return of what’s called liquidity preference by businesses, investors and households. It’s also what’s called a liquidity trap. Giving businesses more money doesn’t result in more investment, hiring, and growth in a severe and deep economic contraction. We’re in a liquidity trap with a vengeance. Monetary solutions don’t work in the current scenario. If anyone doubted John Maynard Keynes’ explanation of why business investment did not, would not, could not lead a recovery from the ’30s Depression despite near zero interest rates and free money, this is it a repeat event today revealing the same. This is a massive liquidity preference, liquidity trap going on.

Until the psychology changes, businesses are not going to open up their wallets and invest and expand production or hire everyone back tomorrow. They’re not going to expand because people aren’t going to be buying things at prior levels as well. That’s another reason. In certain industries like the oil industry, you have a total true collapse of capital expenditures going on. That’s not going to come out of it. The same is true with large sections of retail, of leisure, hospitality, travel and mass entertainment industries. They’re just not going to come ‘back to normal’, even under the best of assumptions. Not in the short term and likely not in the longer as well. The economy is now severely wounded, and ending the virus effect—even if quickly—is not going to change the economic crisis fundamentals very much. The contraction now has an economic dynamic of its own.

You’ve got to remember that every time there’s a deep recession, business looks for ways to cut costs. They focus on ways to become more efficient in using their employment. They replace jobs more with new technology and automation. That’s what they’re going to do coming out of this, too. They’re not going to hire these people back in droves, I don’t believe. As long as this virus isn’t resolved with the vaccine, the uncertainty is going to hang over everybody, business and consumer alike, and the hangover is going to keep the recovery very, very slow. And businesses will look for new ways to cut jobs, not rehire, or rehire those laid off as part time or temp workers.

Now, the big wild card with this very slow recovery, if it comes, when it comes, the big wild card is the credit system, the banking system, and by that I mean the shadow banking system as well as the commercial banking system. They’re about the same size. But the shadow banking system is far more unstable and fragile. If there’s a credit crunch, at least I’d say in financial system terms, there will be defaults and bankruptcies that will cause a major crisis in the credit system. Credit will freeze up. When that happens what you’ve got is the overlay of a financial crash on top of this already real economy collapsing.

You see, in 2008, it was different. It was the financial side that crashed that dragged down the real economy, and it was only halted when the Federal Reserve dumped $5 trillion into the banks and then engineered low interest rates for 6 years after that. The Fed at the time said, “We’re going to take the money back when we get recovery. We’ll sell off our $4.5T balance sheet.” I said at the time in my 2017 book, ‘Central Bankers at the End of Their Ropes’, it would not happen. Central bankers were at the end of their rope and would never retract the excess liquidity injected to save the banking system.

And I predicted all of this in my 2016 book, Systemic Fragility in the Global Economy as well. In fact, my central bankers book is subtitled Monetary Policy in the Coming Depression. We are certainly, certainly in a great recession here right now. The question today is will the nonfinancial corporate sector default on the massive debt they accumulate the past ten years that is now coming due? And will deflation in financial markets spill over to exacerbate deflation as well in real goods and services? The longer that we have this contraction in the real economy, the more fragile the financial system will become and the more susceptible it will be to a crash itself. When that might happen, I don’t know for certain, but the odds are increasing it could within the next six to twelve months.

But right now we have the Federal Reserve bailing out the banks even more than in 2008-09, spending even more, injecting even more liquidity to bail out the banks even before they fail this time. In 2008, they were failing and we spent $4-5 trillion to bail them out after the fact, and of course central banks globally did the same. Globally, it was a $20 trillion bailout by liquidity injection.

The problem with injecting so much liquidity is that you might save the banking system from collapsing, but you inject so much liquidity in the global economy, after it’s all over it ends up in fueling financial speculation and growing financial bubbles and fragility even further again. This is one of the great contradictions of capitalism right now. They generate banking crises caused by too much excess liquidity over decades, too much investment going into financial markets. It causes these bubbles and crashes, and then they have to bail it out with – guess what? More liquidity. So the solution to the problem becomes the problem once again.

That will be the inevitable consequence once again of the Federal Reserve now injecting trillions of dollars into the banking system. Already it has promised $6 trillion. Even before the crash came, in early 2019 the Fed had abandoned raising interest rates and started cutting rates again, providing more cheap money. And then it started its QE once again, although it didn’t call it that, last September by pumping $500 billion into repo market to keep that market from going under. And then when this virus thing started, the Fed announced still another $2.2 trillion—i.e. $1.5 for repos and $700 billion once again for buying mortgages and mortgage bonds and treasuries, call it QE5, whatever.

So going into this virus crisis in February 2020 the Fed had spent $2.7 trillion over the prior 6 months, and now it’s another $4 trillion at least promised by the Fed in March, and it may be open-ended. And right now the Fed is not only pre-bailing out the banks and the shadow banks, it’s setting up once again special lending facilities to deal with the worst fractures in the financial system that are appearing, for example right now in the municipal bond market. We also are seeing problems in the money market funds and commercial property and commercial paper markets, in the repo markets, and now they’re pre-bailing out the consumer credit. Credit cards, auto finance firms, and whatever.

The Fed is becoming a garbage can for corporate debt everywhere. It’s original mandate from its formation in 1913 up to 2008 was to bail out only the commercial banking system. In 2008-09 that was expanded to bailing out the shadow banking system as well—i.e. insurance companies, hedge funds, finance companies, and all the rest of the high risk taking and speculating financial system that had grown as large as the commercial banks. But now it’s every private financial institution and sector that holds debt. And nonfinancial corporations at all levels as well. They’re prepared to bail the whole thing out. And the Fed’s doing it even before the banks and non-banks default or go bankrupt. It’s a general pre-bailing out of the entire capitalist system. Read the Fed’s original mandate. It says nothing of that.

Well, they may bail it out in the short run, though even that’s not guaranteed – we’ll see whether we have a credit crisis nevertheless within the next 12 months or so– but even if they do bail it out in the short run, what the Fed’s doing today is such a massive injection of liquidity that for the next decade we will have nothing but financial instability occurring on a repetitive basis.

Essentially, you could say this: fiscal and monetary tools that mainstream economics says are used to stabilize the economy no longer function that way. These are tools being used to subsidize capital incomes across the board. That subsidization’s been going on for two decades now. So the capitalist state is so integrated now with maintaining values and maintaining capitalist incomes that it’s a total different animal in the 21st century. It’s become one with capital. More integrated with capital than ever before. It’s another indicator of the system’s crisis. Policy can no longer serve its primary function of stabilizing the system; it’s now a handmaiden for ensuring capital incomes first.

If you look just at tax cuts in this country since 2001, George W. Bush gave $4 trillion to corporations and investors, with some tax crumbs thrown to consumers. About 80% of the $4T went to businesses & investors; about 20% to consumers. Then we get Obama, and Obama gives $288 billion in tax cuts to business in his 2009 bailout. Then he extends Bush’s tax cuts for another two years to 2010 and passes another $800 billion in business tax cuts in 2010 on top of that. And then he takes $1.5 trillion out of government spending on social programs to pay for it in 2011, and then in 2013 he makes Bush’s tax cuts permanent at the cost of another $5 trillion.

So we had over $10 trillion in tax cuts mostly going to investors and businesses under Bush and Obama, and then we get Trump, who has already passed $5 trillion more in tax cuts, most of it, again, for businesses, multinational businesses, corporations, and all the rest. $4.5 trillion in January 2018 over the next decade and another $429B in 2019 in tax loopholes. It’s massive tax cuts since 2000. $15 trillion and rising. And on top of that, we fight these wars in the Middle East that cost $7 trillion. That brings us to the Cares Act passed this March 2020, which according to reports amounts to more than another $650 billion in tax cuts.

Well, no wonder. Add it up. $15 trillion in tax cuts, $7 trillion in wars, that’s $22 trillion. That’s the U.S. national debt last year, 2019. Of course, that national debt now is going to go to $27-28 trillion by 2022. Meanwhile, the financial side of the capitalist state is getting very unstable, and the system itself is getting very unstable.

Systems and empires crash most often because of financial instability internally. That’s what causes them to go under when they cannot continue economic growth and continue the standard of living for the people inside it. You can go back to ancient Rome. Let me go off on a historical tangent here. Why did Rome collapse? Because it lost its agricultural base. It lost the economic surplus that it used to finance its armies with when the barbarian so-called invaders took over Spain, Sicily and North Africa, where its agriculture surplus was located, its agricultural economy. It lost it. That was the fifth century. It had already lost its eastern agricultural base and surplus when Egypt went to the Eastern Roman Empire early in the 4th century.

So Rome could not afford to field an army large enough to protect its borders and it crashed. The same thing happens to all empires. Look at the British Empire. It loses its colonies after World War II and it becomes just a shadow, a shell of its former self, dependent on the rest of Europe and the United States allowing it to become a financial center. But of course, with Brexit on the horizon, Britain will no longer be that financial center. Britain is going to be an economy about the size of Northern Italy within the next decade. It’ll be totally irrelevant.

The same thing is happening within the United States now. The same thing. We have this fiscal crisis, we have a monetary crisis, and both monetary policy and fiscal policy are just conduits for the subsidization of capital incomes. It’s undercutting the standard of living for the rest of the country. At some point, people were fooled thinking that Trump was going to do something about it – and of course, the Democrats ran a stupid campaign by incompetent candidates and they lost to Trump, and now they’re trying to get back in the game. But they’re having a hard time, mostly due to incompetent leadership and continued dumb strategies.

But it’s still a 50-50 chance whether Trump might not win again because of Democratic incompetence, electoral incompetence. In fact, Trump has taken control of the Republican Party. He has control of the “red states” and therefore control of the Electoral College and the Senate, and the Supreme Court now. Don’t forget, in 2000 the Supreme Court gave the presidency to George W. Bush by stopping the vote in Florida. Something like that could happen again in another close election.

So all these institutions of government are working together to support capital in this country, and the most extreme and rapacious forms of finance capital in particular. Former bankers from Goldman Sachs investment bank are running the economic policies of the US since Trump came into office. They’re everywhere in high positions in his administration. Don’t count out the possibility that Trump may even, if this thing continues, call a national emergency and suspend the November election if this virus thing gets worse. That’s quite possible. Then we’re in a de facto political civil war in the United States, and much more disruption, and therefore much more uncertainty in the economy.

Now, that’s an extreme possibility, I admit, and I don’t want to be alarmist, but you’ve got to look forward and ask yourself what’s the worst case scenario? What’s the best case scenario? What’s the likely scenario, what’s in between the extremes? The most likely scenario, to get back to the original question, is that we’re going to have, at best, a very, very slow, rocky recovery here for the rest of this year and a very slow recovery at best for years to come.

It’s going to change the consciousness of people in this country and it’s going to change the politics in this country like we’ve never seen before. It could go further right and it can go in the direction of progressive politics. But that’s something no one can predict yet.

(Note: This interview was conducted in mid-April 2020 by Konrad Stachnio of Poland, for the publication of a collection of essays by writers in Europe and the USA on the emerging virus-driven global economic contraction.)
A week ago in Minneapolis, for all the world to see, a black man, George Floyd, was murdered by a policeman, Derek Chauvin. Protests broke out in nearly 100 American cities, and even worldwide, and have continued now for more than a week.

Murders of black men by police in America are not new. They are endemic. So why the deep, widespread, and sustained protests this time?

Certainly the nature of this particular murder explains in large part the especially angry protests and response. But it’s not the entire explanation. Youth of all color, race and ethnicity are leading the demonstrations.

A Sadistic, Merciless & Intentional Killing

The killing of George Floyd was a particularly reprehensible police murder. It was clearly intended. It was merciless. It was sadistic. As the world has watched, Floyd was cuffed, face down on the street, pleading for his life. And the more he pleaded, the more Derek Chauvin, the cop, seemed determined and unrelenting, intent on keeping his knee on Floyd’s neck. The first six minutes, as Floyd pleaded for his life, even pitifully calling out for his mother at the end, a sure indication he felt he was nearing his last moments of life. But for almost 3 minutes more Chauvin’s knee remained after Floyd had already lost consciousness.

What angers those who observed the murder most is the lack of mercy shown by Chauvin and his three complicit partner officers. What they showed was clearly an intention to kill. Chauvin appeared almost to take pleasure in keeping his knee on Floyd’s neck for three minutes more after he lay motionless. That made it a particularly sadistic murder.

It suggested to observers of the video, especially to black folks, that the police in 2020 will show you no mercy. Plead all you want for your life when cuffed, helpless, face down in the dirt. They’ll still murder you. And apparently enjoy it in the process!

The murder act was followed soon by another typical series of events, also all too often occurring in America today: Minneapolis police and the city’s district attorney (DA) office prevaricated and hesitated taking action, only responding when protests erupted. That delay suggested a typical cover up was underway, as is so often the response of local authorities in such cases.
There’s a big problem in America today: the cozy relationships that exist between police and DA offices. Both ‘scratch each others’ backs’, as the saying goes: The DA depends on police testimony to get convictions in court; in turn the DAs go light and help protect the police in exchange for their favorable testimonies. Police unions frequently provide significant campaign donations to District Attorney candidates that favor them, creating a kind of political ‘conflict of interest’ by DAs. Coroner offices play a contributing role, by providing whatever autopsy results are necessary to support the DA. Carefully selected Grand Juries, should legal challenges to murder get that far, then endorse their joint mutual cover ups. It’s an institutional arrangement that too often thwarts the process of Justice.

So it’s not just an occasional racist cop. It’s institutionalized racism. A pattern that repeats over and over again. This is what the protesters of Floyd’s murder also realize and demonstrate against. They’ve seen it before. Time and again.

Black folks today know that pleading for your life when about to be murdered—like pleading for Justice after the fact—will more often than not fall on institutional deaf ears when police brutality is concerned. No mercy and no justice come in the same institutionalized racist package.

Protests As Acts of Solidarity

The immediate and increasingly angry protests that followed the murder of George Floyd are not due solely to the police killing of Floyd. The media would have you think so. That it’s only about the murder of Floyd and policy brutality. The politicians would like you to think so. All those leaders calling for calm and dialogue want you to believe so.

Floyd may have been murdered in nine minutes. But many youth in America today, especially but not only youth of color, feel their own lives are slowly and steadily being drained on a daily basis, sucked dry by the unfairness and injustice of ‘the system’. They feel that system—a capitalist system that increasingly rewards the wealthy and ignores the rest as never before in its history—has its knee on their necks too. And that system, that knee, is no less unrelenting, shows no mercy, and has no intent on relieving the pressure.

Working class youth of all color today know their lives are being destroyed more insidiously, step by step, year by year, as they struggle to survive: laid off and moving from low paid job to job, accumulating crushing debt laid upon debt, lacking minimal health benefits, changing apartment to apartment as rents are continually raised, with no hope of ever having a normal family life, of ever paying off student loans, in effect having to live a 21st century form of economic indentureship, a second or even third class economic citizenship—while they watch multimillionaires and billionaires almost exponentially add to their wealth.

In just the last three years under Trump, corporations registered record profits, wealthy investors and 1% were given $4.9T in tax cuts and $3.4T in stock buybacks and dividend payouts. While the rich and their corporations get richer, the rest make due with stagnant or falling wages, working two and three jobs, and constant job loss and turnover.

All those protestors on the streets this past week—virtually all young folks—are not just demonstrating against the murder of Floyd and institutionalized racism. That’s the tip of the protest spear. But it’s more than that. It goes deeper than that. There’s a deeper frustration and desperation behind it all, affecting tens of millions but especially American youth.

The youthful protesters looked at Floyd and they saw themselves. The protests are thus an eruption of social solidarity among wide sections of American youth! Not just among black and minority youth but American youth in general. Look at the composition of the demonstrators city after city. They are mostly Millennials and GenZers of all races and ethnicities and gender who feel they have been left behind by ‘the system’. Left out and declared disposable. They are virtually all working class youth. What the protests show is that Class and Race are coming together! Especially among the youth.

They are fearful of police brutality, especially blacks and youth of color. But they are fearful as well of being condemned to a life of low paid, no benefits, insecure and futureless part time and temp work. Working often two and even three jobs cobbled together just to get by.

And now, with the advent of the Coronavirus pandemic, even those mostly low paid service jobs have been wiped out by the virus and recent economic crash—many of which, they sense, aren’t coming back soon or even at all. The Congressional Budget Office today, June 2, 2020 announced it will likely take ten years for the jobs now being lost to come back, and many won’t return at all! There will be no V-shape quick recovery. It will be W Shape, extended over a decade or more, with periodic brief and weak recoveries followed by repeated relapses and recessions—whether or not there are subsequent waves of the virus. The economic die is cast. The US economy (and global) have entered a phase of chronic, long run decline.

What the protestors don’t realize yet, but will soon, is that more of their low paid jobs with no future are about to be wiped out by the coming Artificial Intelligence revolution and automation now ramping up. According to McKinsey Consulting, AI will eliminate 30% of all occupations in the next five to ten years. Even their low pay, futureless service jobs will be eliminated.

Add to all the above fears of the worsening climate crisis the protesting youth know they will have to live through. And to that the growing public awareness of a deepening political crisis in America, as the nation drifts into tyranny driven by the Trump wing of the US political elite.

The USA has entered a ‘triple crisis’: health care & environment, jobs and the economy, and a growing political crisis of Democracy in America itself. The protestors know this. They sense and feel it and are growing frustrated, angry and desperate. The youth of America are growing increasingly desperate. All that ‘social crisis kindling’ is feeding the protests. Police brutality, institutional racism, and murder is just the spark that has set it all off. It’s not just about George Floyd any more.


So what’s the solution(s)? To escalating police murders; to white supremacist provocateurs who are intent on stoking a race war (as they say in their own words); to the sub-classless looters that prey upon the protests and demonstrations; to the local institutionalized racism. What might be done?

It’s no longer acceptable to say, as elites of both parties and their media declare daily, that demonstrators should calm down, go home, and let’s dialogue about how to reform the police. That’s been done before. Many times. With little result. It’s time for black folks, protestors and demonstrators on the streets today to develop their own independent solutions to the problem of police brutality.

There are three general actions that might be undertaken immediately to confront institutional racism in America that chronically gives us murders of George Floyds:

1. Break the iron nexus between Police Departments and District Attorney Offices
2. Launch a National ‘Policing the Police’ Movement
3. Form Local Community ‘Committees of Safety’

At the core of institutional racism is the relationship between local police departments and District Attorneys. The police rely on the DAs to smother, delay and defuse investigations and prosecutions of police who have engaged in brutality and murder against black and other minorities. The DAs depend in turn on police testimony in court cases to enable them to win their cases and advance their personal careers. In exchange for police assistance, the DAs go light on police charged with brutality. Knowing they are covered, police feel more inclined to shoot first and not worry about the outcome. It’s a ‘scratch my back-I’ll scratch yours’ mentality that permeates both institutions—police departments and DA offices—nearly everywhere in America today.
Coroner’s offices play a secondary but important role in the process when a murder is involved. They assist the DA by rendering a decision of the cause of death that conveniently points away from the police action in question. The decease died of a heart attack and had underlying heart problems is often the official cause of death. It wasn’t choking of the defendant by the police. It was a heart attack that would have occurred regardless of the choke hold. The guy had a bad heart or some other underlying condition was the cause of death—not the police tactic employed.
Another institutional player in the charade is often a local Grand Jury. This archaic institution is nothing like a real ‘jury’, although called that. It is a selected group of often pro-police and so-called ‘upstanding citizens’—meaning more often than not white, conservative and business oriented. Grand juries often rule to throw out charges, giving the DA cover not to proceed to prosecution. Should the DA still proceed, the charges are reduced from murder to something less based on Grand Jury lesser recommendations. If convicted, the police in question’s penalty is often reduced to only employment termination. But he is then eligible to go to another police dept. and rehired. Police departments often have a silent understanding to rehire each other’s ‘bad apples’. Thus a cop with a long record of abusing blacks and minorities continues to work somewhere ‘down the road’. It’s not unlike the Catholic church simply moving some pederast priest to another parish.

Breaking the Police-District Attorney Cover-Up Nexus

• Local DA’s must be prohibited from prosecuting their local police in cases of racist related brutality and murder. The prosecution responsibility must be moved to an independent source outside the county or city.
• Police department unions and organizations should be prohibited from contributing to DA election campaigns
• Coroners should be selected by the murdered party’s family to ensure impartiality
• Grand Juries should be abolished, especially and starting with cases involving police brutality and killing
• A police discharged for cause, involving a racist brutality case, should be prevented from rehire by another police department anywhere
Launching a national ‘Policing the Police’ Movement

• A national ‘Policing the Police’ movement should be launched. Wherever a cop confronts and stops someone, the public should use smartphones or other photo devices to record the interaction. This is now done haphazardly and occasionally. There should be a general education effort nationwide to get everyone to engage in the practice of video recording police whenever they see a police interaction with any citizen.
• An independent national database of photos and video recording of confrontations should be created.
• A public education campaign should be launched as well, encouraging the public to immediately send all videos to the independent national database.
• The public database should be accessible to everyone online
Forming Local Community ‘Committees of Safety

• All cities should form local community ‘Committees of Safety’ to police the police, to gather information on confrontations and make the information available to the general public
• The Committees should organize protests and demonstrations and coordinate with other Committees outside their local area to organize larger protests and demonstrations
• During protests and demonstrations, Committee members should undertake the task of identifying, confronting, and rooting out provocateurs. And distribute photo leaflets of known white supremacists and provocateurs to participants in the protests and demonstrations
• The Committees of Safety should publicize to the community at large those identified as looters during the protests and demonstrations
• Committees should endorse and run candidates for city councils, city managers, DAs, and local elected judgeships that are committed to, and supportive of, black lives matter and other minority civil rights
• Committees would raise demands for local ordnance changes and state wide legislation to protect the rights of demonstrators, and organize recalls of politicians who do not
• Committees would undertake other measures as necessary to ensure the safety of protestors from provocateurs, white supremacist violence, and other proponents of violence against people or property during demonstrations
Many of these proposals are not new. Others are being introduced by protestors right now. But the point is the protests and demonstrations should be taken to the next organizational level. They cannot go on as just spontaneous events. They will eventually dissipate without organization. Or be captured by provocateurs and looters. Or manipulated by politicians for purposes of personal election and careers. Or all the above.

Without organization, the ‘I Can’t Breathe’ anti-racist, anti-policy brutality movement that has swept the country runs the risk of eventually fading—just as had other promising popular movements like ‘Occupy’ in 2011 and the ‘Yellow Vests’ in France of a few years ago. Without organization, the provocateurs and looters will also increasingly displace the protestors in the media–providing cover for a ‘law and order’ right wing reaction that will use the violence to crush the demonstrations while ushering in still further restrictions on civil liberty rights of assembly and expression. Nor will the police and politicians rid the protests of provocateurs and looters. The protestors must do so themselves. But that cannot be done without organization.
The other even greater risk, absent organization, is that mainstream politicians will divert the energy and anger of the protestors into channels to get themselves elected.

Organization is needed as well simply in order to expand and build the protests and demonstrations, and to ensure they continue with ever larger turnout.

Forming local community ‘Committees of Safety’ are the core organizational element necessary for building the organizational power of the protests and demonstrations. Launching a ‘policing the police’ movement is a way to connect the general ranks of the demonstrators—and the public in general—to the work of the Committees of Safety. And the Committees and the public Policing the Police movement are together the means by which to independently politically attack the institutionalized racism embedded today in the relationships between police departments, district attorneys, coroners, and Grand Juries.

Breaking institutional racism requires an independent political movement, with a grass roots organizational structure. That independent movement is on the streets of America right now. Will it take the movement to the next level, a level necessary to break the embedded local institutions of racism?

Dr. Jack Rasmus
June 3, 2020

This past week two events highlighted economic news (along with the continuing rise of jobless, now approximately 50m). The first event of note was the intensifying debate within Congress on the next economic mitigation-stimulus bill called the Heroes Act. With corporations fat with cash from the bailout and wage earning households facing the expiration of effects from income checks and extra unemployment benefits, Congress and the two parties are at a crossroads. McConnell and his Republicans don’t want further stimulus for wage earners. He and they want ‘to wait and see’ the effects of the prior $1.74T bailout of business and the ‘opening of the economy’ first. Meanwhile, Pelosi and the Democrats want more income stimulus and unemployment benefits extended to January 2021 for households now beginning to face a ‘fiscal cliff’. The choice is whether a floor is still extended under 120m households to prevent economic depression, or whether that floor is allowed to collapse. The US economy is at a crossroads the next 90 days that will determine whether we experience just another ‘great recession’ or slip into a bona-fide great depression. Today’s Alternative Vision show discusses the state of the ongoing debates and concessions in Congress with regard to the Heroes Act.

The show also leads the hour with a comment about the second major economic event of the past week: Trump’s pre-declaration of economic war with China. Using the virus crisis as an excuse and diversion for his abject failure to lead the US during the current health and economic crisis, Trump threatened financial warfare and sanctions on China. How the US employs financial measures to attack other economies and countries is noted, including manipulation of the dollar (the world’s trading and reserve currency), its control over the international payments system (the SWIFT system), and sanctions to prevent other countries and economies from trading with its imperialist target (e.g. China in this case). These and other levers of financial power are increasingly employed by the US in the 21st century. With the US-China trade agreement of last December in shambles, and China not buying US goods nor likely to buy much in the future, Trump now sees China as a convenient scapegoat in an election year.




Today’s show continues in more depth the discussion last week on the pending Heroes Act in Congress. Is it another mitigation bill, stimulus bill, or a growing subsidy for business bill. What are Republicans proposing to change the original House proposals in the bill? Senate Democrat responses in progress? What’s the true unemployment rate in the US today. Why has the $1.7T in corporate loans under the March ‘Cares Act’ not being taken up by big business? And why is only $95B of the Fed’s $1.7T liquidity provisions to banks being used so far? Is the bailout of households being converted to more subsidies for business? The show concludes with a discussion of how US financial imperialism works, and why Trump is now preparing to leverage it against China marking a new stage in the China-US economic war. Some commentary on Trump’s emerging 2020 election strategy: election fraud.