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Trump’s 28 Pt. Ukraine War Plan

Posted in Uncategorized, tagged , , , , , on November 24, 2025| 2 Comments »

by Jack Rasmus

This past week President Trump proposed a 28 Pt. plan to Russia and Ukraine as a basis for negotiations to end the current Ukraine-Russia war, now approaching its fourth year.

What’s behind the Trump proposal? Is it a further revelation of verbal understandings agreed to between Trump and Putin last August in Anchorage, Alaska? Or something more?

Is it a political cover for Trump to finally cut military intelligence and surveillance aid to Ukraine—while simultaneously imposing additional sanctions on Russia, and perhaps Ukraine as well, to pressure both parties to commence negotiations in earnest?

Is it a Trump maneuver to enable the US to share in the exploitation of the $260 billion Russian assets frozen in Belgium and EU banks?

Is it a Trump tactic to justify further US withdrawal from involvement in the war, once the Europeans reject it, and to let the Europeans have ‘their war’ with Russia in Ukraine?

Is it, as some have argued, a clever ‘hard cop’ (Europe) vs. ‘soft cop’ (US) maneuver to get Russia and Putin to agree to another ‘Minsk III’-like temporary truce to halt the conflict on the ground so that Europe & Ukraine can buy time to recruit, rearm, and retrain forces in order to continue the conflict?

Or is it a preliminary step toward eventual real negotiations down the road—i.e. after further military conflict exhausts both sides creating a basis for real compromises and negotiations in 2026?

Up to the release of the 28 point proposals this past week, the fundamental positions of three of the four parties involved in the conflict—Ukraine, Russia, and Europe—have not changed much, if at all. Is Trump’s plan therefore about trying to move the parties off their prior hardened positions that prevent any serious negotiations.

Prior Positions of the Parties

To date, Russia has held firm to its June 2024 positions: No NATO in Ukraine; formal recognition by Europe-US-Ukraine of Russian sovereignty over the four provinces (Lughansk, Donestsk, Zaporozhia, Kherson) and Crimea; reduction of Ukraine armed forces to less than 100,000 to ensure no future threat to Russia; and Ukraine neutrality and denazification of its government.

Ukraine’s position has been the same since the onset of the conflict in 2022: no Ukraine land concessions including Crimea; reparations for Russian damages; full retreat of all Russian military forces to Ukraine’s 1991 borders; and no negotiations to begin until a ceasefire and Russia’s full retreat.

Europe’s position is full support for Ukraine’s positions; an immediate ceasefire along the lines of combat as precondition to negotiations; use of Russia’s $260 billion frozen assets in its banks to fund Ukraine’s war effort in the interim and thereafter for Ukraine’s eventual reconstruction post-war; no changes to borders as a result of force; Europe troops to be allowed in Ukraine after the war ends; and no limits to NATO expansion determined by any state outside NATO member states.

The US position under Biden agreed with the European and Ukrainian positions above virtually completely. Biden proposed, moreover, to continue to escalate US financial, weaponry, and military assistance for as long as it takes to force Russia to end the war.

Under Trump, the US position shifted, to seek negotiations and to end the war on terms of whatever is eventually acceptable by Russia, Europe and Ukraine—as dictated by the relationship of forces at the time of final negotiations.

Trump and the US have therefore swung between a solution preferred by the political alliance of US neocons, Europe leaders, and Ukraine to a solution advocated by other political forces within the US who have begun recognizing the impossibility of ending the war on the basis of Europe-Ukraine positions to date. Trump’s dual representatives reflect the duality of the US position: General Kellogg representing the US neocon/EU positions and Trump’s personal advisor, Steve Witkoff, the emerging more realist US view of the conflict.

US Vice-President, J.D. Vance, summarized this latter, realist view when questioned by US media this past weekend after the release of Trump’s 28 Pt. Plan: the rigid Europe-Ukraine hardline view of the past three and a half years represents the view of “failed diplomats or politicians living in fantasy land” committed to the idea that somehow “more money, more weapons, or more sanctions” will result in eventual “victory”! 

The US wants to move on from Europe’s war with Russia in Ukraine. Its imperial interests now include larger strategic concerns in the middle east (Israel-GAZA-Iran war), Latin America (Venezuela regime change plans), and western Pacific (Taiwan-China). The emerging new view is that if Europe wants to continue war with Russia, they should do so on their own, paying for it and providing Ukraine’s the military support themselves.  The new view beginning to take hold among the Trump wing of the US foreign policy elite is that the USA has more important global strategic interests and concerns beyond continuing fighting and paying for Europe’s wars or protecting Europe from its imagined threat from Russia.

Mainstream Media Complicity

The US and Europe mainstream media throughout the conflict since 2022 reflected the US neocon view that Russia’s economy was about to collapse, Putin would be overthrown by Russian political opponents, and the Russian army was weak and would quickly stop fighting.  The most recent such view is that Russia has suffered 1.5 million losses since 2022—a number even larger than the current total Russian military of 1.4 million. 

Following the announcement of the 28 Pt. plan, the New York Times provided a brief, incomplete and slanted summary of its terms.  In its very first paragraph, it described the Trump plan as one in which “Ukraine would have to capitulate on most of Putin’s demands” and that “Ukraine would gain little other than a halt to the war”.  The Times’ authors added “Russia’s economy is at its weakest since February 2022” and that Russia is facing serious economic pressures due to US sanctions—all of which is a repeat of the propaganda mantra and remains contrary to the facts stated by various western market research sources.  Another Times theme is that the Trump requirement Ukraine hold elections is about “ushering out” Zelensky—i.e. a political goal attributed to Putin.

These themes were reiterated by the European media in turn and then some. The UK Guardian clarified several important elements of the plan conveniently ignored by the New York Times. For example, it questioned who originally authored the plan? It suggested the Plan was perhaps Russia’s originally, and was passed off by US Secretary State, Rubio, as Trump’s plan. The attempt here clearly was to undermine the plan and the US role, suggesting the US was just a dupe for Russia. Rubio immediately denied the suggestion, called the Times’ suggestion “blatantly wrong” and confirmed it was a US plan, not Russia’s, reached after US discussions with both Ukraine and Russia.

That did not stop US neocon Senators from repeating the Times’ theme publicly as well, implying the plan was Russia’s not Trump’s.

Key Elements of the 28 Pt. Plan

The plan is now public and readers can review it in detail for themselves. However, the key elements are the following:

  1. Ukraine must withdraw from the two provinces, Lughansk and Donetsk. It has already been driven out of Lughansk and occupies only 25% left of Donetsk. Moreover, the area from which it withdraws in those two provinces is to remain a demilitarized zone. So per the plan Ukraine is not required to actually recognized either as Russian sovereignty.
  2. Russia must withdraw all its forces from the northern provinces of Sumy and Kharkov. Its forces in Zaporozhie and Kherson are to be frozen in place, the rest of those two provinces remaining occupied by Ukraine.
  3. The plan calls for no NATO troops deployed in Ukraine and no further NATO expansion (the latter point left unclear as to where exactly no expansion was to occur). Ukraine can join the European Union.
  4. Sanctions on Russia would be removed in steps. Russia was allowed to join the G7 as its new G8 member.
  5. The size of Ukraine’s current 900,000 military forces would be capped at 600,000.
  6. $100 billion of Russia’s $260 billion frozen assets in Europe banks would be transferred to a joint US-Russia administered fund for the reconstruction of Ukraine after the war. To which Europe will add another $100 billion but not administer.
  7. Elections in Ukraine would be held within 100 days after the final agreement to end the war.
  8. There were also numerous vague terms calling for restoration of Russian speaking Ukrainians cultural and political rights prior to the new elections.

Europe leaders initially expressed extreme displeasure with not being part of the determining of the plan, cut out of negotiations with Russia, and especially with having to provide $100 billion of Russia’s frozen assets to the joint US-Russian fund and then another $100 billion further to the reconstruction of Ukraine.

Thus, the European and US have begun early in-fighting over the spoils available after the end of the war. Whose corporations will receive the lion’s share of the proceeds from reconstruction has begun emerging as a source of contention within the NATO forces, US and European.

Responses to the 28 Pt. Plan

Russia has said the 28 Pt. proposal is a basis upon which to start negotiations. Europe has initially rejected it and it hurriedly gathered its leaders in Geneva on November 23, 2025 to craft its official rejection and alternative proposal. Zelensky and Ukraine once again took cover behind the European opposition to the latest Trump initiative, declaring its opposition to the plan as well.

Europe and Ukraine have consistently insisted that negotiations should only take place when Russia agrees to an unconditional ceasefire along all lines of combat. Ceasefire first and freezing all lines of military contact is the precondition to start negotiations. That remains the fundamental Europe-Ukraine demand, which it has been since 2022. By demanding ceasefire first, then negotiations, Europe-Ukraine in effect propose a repeat of Minsk II negotiations held in 2015 to halt Russian military activity. They want a ‘Minsk III’.

As former British diplomat, Alaistair Crooke, has explained, “they (Europe) want a ceasefire, not a solution, so they can go back in, retrain, and rearm Ukraine to continue the war”. He adds: “Europe is coaching Zelensky to say No” and it wants to continue a “controlled war”.

German Chancellor, Merz, warned if Ukraine loses it will have a profound impact on Europe politics as a whole. That’s true. Europe’s current political elite have tied their futures to the war in Ukraine and cannot retreat. To do so risks the possible fracturing of NATO and even perhaps the European Union.  So why are Europe leaders like Merz, Macron in France, and Starmer in the UK so committed to continuing the war? There are several possible explanations.

First, the war is the way to keep the USA financially, and even militarily, committed to remain in NATO in Europe. The USA military umbrella since 1945 has been profitable for Europe and politically useful for Europe’s domestic politics: not having to expend huge sums on defense (US total cost in NATO is now estimated at $32B per year) has enabled Europe to provide social benefits to its populace much greater than the US has provided to its populace.

Should the USA pull out of Europe—which Trump likely wants to do eventually to cut $32B from future US defense spending—then Europe will have to cut social benefits, raise taxes further, and/or incur more sovereign debt, in order to develop its own defense/war military industrial complex. Merz has already declared Germany will spend $1 trillion over the next five years to do so. Other European countries will have to do the same. Europe’s economy cannot sustain that expenditure without massive cuts to social benefits that will certainly result in widespread political upheaval. Europe’s economy has been limping along since 2008, growing tepidly, experiencing bouts of stagnation and mild recessions for the last decade and a half, and has been declining in terms of productivity for some time. Real wages have not risen since at least 1999 when the European Union was created.  

Europe has been steadily falling behind the US and China technologically and financially. European leaders may think a surge in military spending will energize its GDP and growth but that route holds great economic and political risks. European leaders are likely aware of the consequences. But they see continuing the war as the way to keep US involved supporting the war, to keep US in NATO providing its subsidies, and the way to buy time to transition to their own military-industrial economy. The Ukraine war is key to buy time for this economic transition. Continued war in Ukraine is the only way for Europe’s elites to justify the social benefit cuts on the agenda.

As UK diplomat Alastair Crooke has correctly observed, Europe needs the war to continue. Ukraine and Zelensky will ride the European horse into the sunset as long as they can.

Failure to end the Ukraine war is not a problem of individuals—i.e. Zelensky, or Putin, or Trump or even the ultra-nationalist/neo-nazi elements in the Ukraine government. The problem is Europe—and Europe’s US neocon allies who share its pro-war objectives as well. European leadership is committed to a long war in Ukraine, so long as Ukraine has the troops to throw into the maelstrom. However, that may be coming to an end sooner than later.

The European leadership met this past Sunday, November 23, to hammer out a response to Trump’s 28 Pts. They will inject their own demands into a new document. In essence, some new formulation of ‘ceasefire first’ and other new demands.

According to the Guardian newspaper, they will propose to amend the 28 Pt plan to include a reduction in Ukraine military forces by only 100,000 to 800,000 instead of the 600,000 indicated in Trump’s plan—neither of which Russia will agree to. They will demand the Zaporozhie nuclear power plan now occupied by Russia to be returned to Ukraine. They’ll oppose immediate reductions of sanctions on Russia or permit it in the G8. They’ll especially reject the US-Russia joint administered fund to reconstruct Ukraine. They won’t agree to no NATO in Ukraine and will reiterate European forces must be allowed in Ukraine after the war. Reports are circulating they may even call for the US to commit troops to ‘supervise’ the truce on the ground after the war, i.e. to lure the US to provide cover for future European military encroachments. Their amendments will thus constitute a ‘ceasefire’ plan, albeit couched in more clever proposals. All of which Russia will reject.

Trump’s response to Europe’s counterproposals will likely include his acceptance of whatever the Europeans propose at Geneva. He’s as much as said so. The 28 Pt plan, even with the European amendments, is just an interim document and another false start event—i.e. an ‘Anchorage 2.0’—on the road to a later more serious negotiation.

When asked by the media he admitted the plan is not the ‘final agreement’. And when queried in turn what he’ll do if Zelensky rejects it, Trump replied: “he’ll have to like it, or just keep fighting, I guess.” 

Strategically the best the US and Trump can get from the Plan is to move Ukraine and Europe off their nearly four years-long hardline positions. To create some ‘hooks’ upon which to hang future negotiations.

True negotiations will not begin until Russia takes back all the four provinces it has declared as part of sovereign Russia. Serious discussions begin only when Russia takes back all of the four provinces, stands at the Dnipr river and decides whether or not to push further west into Ukraine or to take Odessa in the south.  At that point the ‘Special Military Operation’, SMO, becomes something else. Something much larger. Alternatively, realistic negotiations might begin if and when the Ukraine army begins to collapse before Russia reaches the Dnipr, which could happen within the next 90 days given the current rate of Russian advances on the ground in the east. 

The Institute for War (IFW), a western think tank clearly allied with NATO and Ukraine, has reported up to 300,000 Ukrainian troops have deserted since the war began. At least another 500,000 have been killed or permanently disabled. Per the IFW Ukraine is recruiting 17,000 troops per month but is losing 30,000.  Russian volunteers (not draftees as in Ukraine) are joining its military at the rate of roughly 30,000/ month and its losses are much less than its recruitment. The ultimate limit to war is not finding enough money to pay for it. Nor even enough weapons. It is the manpower losses.

The war in Ukraine will end when the military conflict ends. Not vice versa—i.e. not as result of a ceasefire ending the conflict before negotiating the terms of its ending.

The Trump 28 Pt. plan will not begin the process of ending the war. On the contrary, the inevitable collapse of the plan may well lead to more escalation, not less.

Jack Rasmus

November 22, 2025

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Predicting the US and Global Economy, 2013-14′ by Dr. Jack Rasmus

Posted in Uncategorized, tagged , , , , , on June 16, 2013| Leave a Comment »

Annually for the past three years this writer has made leading edge predictions about the trajectory of the US and global economies for the 12-18 months to come. The last previous set of predictions appeared in the January 2012 issue of ‘Z’ magazine. Eighteen months later, it appears most have materialized. The following briefly summarizes those prior predictions, and makes further predictions for the next 18 months, through December 2014:

I. Review of January 2012 Predictions

1. The forecast that the US would enter a double dip recession around late 2013 or 2014 is yet to be determined. However, the US and global economies both appear to be slowing significantly (see my blog piece ‘US GDP Longer Term Trend Analysis’), while China, the BRICS, and in particular Europe all are slowing even faster. Japan has engaged in a desperate and risky monetary stimulus that will fail in the longer term. Simultaneously, financial instability worldwide grows as asset bubbles peak and begin to deflate.

2. It was also predicted in the January 2012 issue that the US Federal Reserve would introduce a third version of its QE program. That prediction was realized, with the Fed introducing an open ended $85 billion a month liquidity injection.

3. A third previous prediction in January 2018 was that deficit cutting would begin again in ‘great earnest’ immediately following the November 2012 elections. That of course also happened, with fiscal cliff, sequestration, and all the rest.

4. In 2012 it was predicted Social security and Medicare spending would be cut a minimum $700 billion, based on what Obama had proposed in the summer of 2011, but backloaded into later years of the coming decade. That is yet to be determined, but appears likely as Obama’s 2012 budget again called for $700 billion in such cuts.

5. Two predictions in January 2012 did not prove accurate: that home prices would continue to fall and foreclosures rise. Single family home prices began to rise slowly in late 2012, albeit only one fourth of the original decline. More than 1.1 million new foreclosures were added to the roughly 14 million total to date in 2013

6. In the January 2012 predictions, it was forecast that US manufacturing and exports would slow in late 2012, which did, and the minimal job growth in manufacturing would level off and decline, which also has occurred.

7. Prior predictions forecast that jobs recovery would undergo a series of ‘false starts’ determined by seasonal and other statistical factors. The result would be little net reduction in total unemployment. This proved partially true: some jobs were created, but more workers than expected left the labor force entirely. The previous prediction of 24 million jobless compares to today’s official 21 million jobless. But the numbers are largely the same if one considers the 4-5 million ‘jobless’ who left the labor force altogether. As a related new prediction: There will be still be no sustained recovery of jobs over the coming year. Jobs will continue to ‘churn’, with high wage replaced with low wage, full time with part time/temp, current workers with jobs leaving the labor force and new entrants and lower pay taking their jobs, etc.

8. Past predictions were more accurate with regard to the global economy. It was predicted the Eurozone sovereign debt crisis would stabilize, then worsen again. The temporary stabilization occurred in the late summer of 2012. The worsening once again is pending. It was also predicted two or more Euro banks would fail. More than that failed in the periphery of the Eurozone alone, with others in Belgium, Netherlands and elsewhere.

9. It was predicted both France and Germany would enter recession in 2012 and the UK experience a double dip—all of which occurred.

10. It was predicted that global trade would slow and begin to contract in 2012—a prediction that also proved correct.
The following constitute this writer’s predictions for the US and global economies in the coming 18 months. (For a more detailed explanation of why these predictions, see the July issue of ‘Z’ magazine, and this writers article “Predicting the US and Global Economy”. This article will be posted on the writer’s website, http://www.kyklosproductions.com/articles, in late July. See also the writer’s weekly radio show on the Progressive Radio Network, ‘Alternative Visions’, archived on Wednesday, June 12, 2013, for an audio explanation of the bases for the predictions).

Economic Predictions: 2013-2014

1. The U.S. will enter a double dip recession around late 2013 or 2014, providing both of the following occur: that either U.S. policymakers continue deficit cutting and a more severe banking crisis erupts in Europe. Either event may be sufficient to precipitate recession. Both most certainly will.

2. The Fed will begin reducing its $85 billion a month liquidity injection significantly within the next 12 months. Monetary retraction will severely disrupt both stock and bond markets. A major stock market correction will ensue and may have already begun at this writing. The additional financial markets at greatest risk are corporate junk bonds, real estate investment trusts, and money market funds.

3. There will be yet another round of deficit cutting later in 2013 and it will be associated with a major revision of the U.S. tax code. That tax code change will include a big reduction in corporate tax rates, from the current 35 percent to somewhere around 28 percent, perhaps phased in over time. Multinational corporations will also get a sweet deal on their $1.9 trillion offshore cash hoard, paying less in the end than their legally required 35 percent rate. R&D tax credits and other depreciation acceleration tax cuts will also occur as part of the deal.

4. In the next round of deficit cutting, Social security and Medicare spending will be cut a minimum of $700 billion—already proposed in Obama’s 2014 budget—and perhaps much more.

5. The much-touted current housing recovery will stall and single home price increases will slow and perhaps even level off. (More than 1.1 million new foreclosures were added to the roughly 14 million total to date in 2013.) Housing will bounce along the bottom much like other sectors of the economy. Institutional speculators will continue to drive the market and once again convert it into a speculators dream, different in form from the subprime fiasco but similar in content.

6. Manufacturing and U.S. exports will slow still further, drifting in and out of negative growth as the global economy and world trade continues to contract further.

7. There will be still be no sustained recovery of jobs over the coming year (today’s official jobless is 21 million). High wage jobs will be replaced with low wage, full-time with part-time/temp, current workers with jobs leaving the labor force, and new lower paid entrants taking their jobs.

8. The current negotiations between the Obama administration and Pacific Rim countries to create a Trans Pacific Partnership (TPP)—NAFTA on steroids—will be concluded, but will not pass Senate approval until after 2014, or take effect until 2017.

9. With regard to the global economy, the Eurozone sovereign debt crisis will again worsen and the banking system grow more unstable. Austerity policy will focus more on direct attack on wages and benefits.

10. More economies in the Eurozone will slip into recession, including Denmark and perhaps Sweden. France’s recession will deepen. Germany will block the formation of a bona fide central bank in the Eurozone and the UK will vote to leave the European Union.

11. China growth rate will continue to drift lower and it will be forced to devalue its currency, the Yuan, as Japan and other currencies are driven lower at its expense by QE policies. A global currency war, now underway, will intensify.

12. Gobal trade will continue to decline.

13. Japan’s risky experiment with massive QE and modest fiscal stimulus will prove disastrous to the global economy, resulting in still more speculative excess and financial instability. Japan’s stock and asset markets will benefit in the short run, but not the rest of the economy in the longer run.

14. Capitalist economies worldwide will converge around QE monetary policies, more modest deficit spending cuts, and a more focused attack directly on workers wages and especially social benefits like pensions, healthcare services and the like—i.e. the U.S. formula. The consequence will be more income inequality worldwide and no noticeable positive impact on economic growth. The next financial crisis event may not come in the form of a crash of a particular market, but in the form of a grinding slow stagnation of markets in general. With general stagnation of the real economy, a slow drift into no growth scenarios is a distinct possibility.

Jack Rasmus
June 15, 2013

Jack is the author of ‘Obama’s Economy: Recovery for the Few’, Pluto Books, 2012, and host of the weekly radio show, Alternative Visions, on the Progressive Radio Network. His website is http://www.kyklosproductions.com; his blog: jackrasmus.com; and twitter handle #drjackrasmus.

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US GDP–On the Road to Double Dip?

Posted in Uncategorized, tagged , , , , , , , on January 30, 2013| 3 Comments »

US GDP data released on January 30, 2013 for the fourth quarter 2012 showed a decline in GDP of -0.1% for the last three months of 2012, thus raising the specter of the US economy, facing still further deficit spending cuts in 2013 amidst declining consumer confidence, may be on track for a possible double dip recession in 2013 or 2014 along with other economies in Europe, the UK, and Japan.

In the fourth quarter GDP numbers, government and business inventory spending led the decline. To the extent consumer spending played a positive role at all in the 4th quarter, it was largely driven by auto sales—stimulated by auto dealers offering buyers deep price discounts, virtually free credit with near 0% auto loan interest rates, as well new auto purchases in the northeast as a result of Hurricane Sandy’s destruction of existing auto stock. 2012 Holiday season retail sales data, in contrast, were otherwise not particularly notable and would have been much worse without the auto sales exception. How much longer auto companies can continue the deep price discounts and free credit remains a question going forward. Net export sales continued to sag in the last quarter, as the slowdown in world manufacturing and trade continued. And, as others have noted, an important source of past consumer spending and GDP growth—i.e. health care services—began to slow ominously at the end of 2012 as well, promising to continue that trend into 2013.

This weak scenario in the fourth quarter 2012, and the virtual absolute stop to US economic growth, was predicted on this writer’s and other public blogs in a piece entitled “US 3rd Quarter GDP: Short Term Myopia vs. Long Term Realities” last October 2012 (see jackrasmus.com, as well as in this writer’s April 2012 book, ‘Obama’s Economy: Recovery for the Few’).

Last October 2012, it was noted that the 3% growth rate in the preceding 3rd quarter, July-September 2012, period was artificially produced by record levels of one-quarter federal defense spending accounting for more than one third of total GDP growth in the quarter. That government spending surge was preceded by more than two years of federal government spending reductions, and thus the third quarter defense-government spending acceleration represented previously held back government spending, to be released right before the November 2012 elections. It was predicted in the above blog commentary on GDP 3rd quarter results that government spending therefore would decline sharply in the following fourth quarter—which it did. It was further noted business inventory spending was on a track to decline as well in the fourth quarter, and that US net exports, having turned negative in the third quarter, would continue to decline in the fourth quarter—all of which also occurred in the latest GDP report. The true US GDP growth trend for July-September was therefore not the 3% reported, but only around 1-1.5% for the third quarter when the appropriate adjustments are made. And that 1.5% or so been the average GDP rate for more than two years. Then the bottomed dropped out in the fourth quarter, as GDP collapsed to -0.1%.

So what’s going on? Is the fourth quarter GDP an aberration? A temporary one time event? Or a harbinger of a still further slowing US economy, moving more in line with global economic trends indicating a slow but steady further slowdown?

In the first quarter 2013, a number of negative developments in the fourth quarter will likely continue, along with new negative developments, together suggesting the first quarter 2013 GDP will at best look much like the fourth quarter—and could even prove worse.

First, more than $100 billion has been taken out of the economy with the end of the payroll tax cut last January 1. Second, consumer sentiment and spending is showing a definite sharp decline in the early months of 2013. Deficit cutting will intensify with a deal on the ‘sequestered’ $1.2 trillion agreement that will occur in March in Congress. Defense spending cuts projected will be reduced, but non-defense spending will occur and perhaps even rise. Consumer spending on autos, which has been a plus in 2012, cannot continue at the prior pace. Health care spending will likely continue to slow, as health insurance premiums of 10-20% continue to be imposed in the new year by price gouging health insurance companies looking to maximize their returns in 2013 in anticipation of Obamacare taking effect in 2014. Business spending that occurred in the fourth quarter to take advantage of tax laws will almost certainly slow in the first quarter. Industrial production and manufacturing will add little, if anything, to the economy and housing will contribute to growth through apartment construction. In short, the scenario is one of continued very slow growth.
It is not the deficit that faces a ‘cliff’; it is the US economy. As this writer has repeatedly written since last November, the ‘fiscal cliff’ was mostly an economic farce. Real forces were further slowing the real US economy. Those real forces are once again reasserting themselves. However, should Congress proceed with continued deep spending cuts in 2013, should the Euro economies, UK, and Japan continue to weaken, and should China-India-Brazil not succeed in reversing their economic slowdowns significantly—then the odds of a double dip in the US will rise still further in 2013-14, as this writer has repeatedly predicted.

The strategic question is ‘Why is the US economy so fragile and weak? Why has it been unable to generate a sustained economic recovery from ‘Epic’ recession since 2009? Why now, after five years since the onset of recession in late 2007, has the US economy stagnating and collapsed to virtually zero growth, once again? ‘
The answers to this are not all that difficult to understand. First, despite $13 trillion in free, no interest money given to banks, investors, and speculators by the US federal reserve for five years now, the banks still continue to dribble out lending to small-medium US businesses. No loans mean no investment mean no hiring mean no income growth for consumption, which is 70% of the economy. Similarly, large non-bank corporations continue to sit on more than $2 trillion in cash. Like the banks, they too refuse largely to invest in the US to create jobs, preferring hold the cash, or use it to buyback stock and pay shareholders more dividends, to invest it offshore, or to invest it in speculating with financial instruments like derivatives, foreign exchange, commodities futures, and the like.

At the same time, the bottom 80% of households, more than 110 million, are confronted with 5 years now of continuing real disposable income stagnation or decline. This income stagnation and decline translates into insufficient income to stimulate consumption spending, which makes up 71% of the US economy. What spending exists is fundamentally credit driven, not income driven. Thus car loans, student loans, credit cards, and installment loans rise and with it household ‘debt’.

The problem with the US economy therefore is fundamentally twofold: not only insufficient income but growing household debt. Together they result in consumption becoming increasingly ‘fragile’ (an income to debt ratio term), and therefore unable to play its historic role of generating a sustained economic recovery. Together, fiscal-monetary policies are rendered increasingly ‘inelastic’ in generating recovery as ‘multipliers’ collapse—to use economic jargon. The outcome of all this is ‘stop go’ recoveries, bumping along the bottom, or what this writer has called an ‘epic’ recession.

by Dr. Jack Rasmus, copyright 2013

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