The passing scene: Links & comments 7/17/2020

What Lies Ahead? by Jack Rasmus.  The USA is headed into a depression potentially equivalent to the Great Depression of the 1930s, which will be made worse by the coronavirus pandemic and climate-related emergencies.  The American government and other institutions are unprepared to deal with any of this.  It’s not just Donald Trump!

Economists on the Run by Michael Hirsh for Foreign Policy.  Paul Krugman admits that neoliberal globalization was a mistake.

Why 3rd Quarter Economic Recovery Will Falter by Jack Rasmus.

On the Recession, Stimulus and Economic Recovery by Dean Baker for Beat the Press.

Poor Whites Have Been Written Out of History for a Very Political Reason, an interview with Keri Leigh Merritt for Jacobin magazine.

“Cancel Culture,” Race and the Greed of the Billionaire Class by Thomas Neuberger for Down With Tyranny!

Don’t Be Fooled by the Cancel Culture Wars by Chris Hedges for ScheerPost.

The Obesity Era by David Berreby for Aeon.  The growth in obesity among Americans is generally attributed to poor diet and lack of exercise.  But maybe the cause is something deeper.

Snapshot of the coronavirus recession

 

Click to enlarge.

It’s going to take more than reopening to repair the damage.

The economic consequences of the lockdown (3)

The best thing I’ve read so far on this topic is an interview of Thomas Ferguson by Paul Jay.

They’re both interesting characters. Ferguson is a professor emeritus of political scientist and the best U.S. expert on money in politics.

Paul Jay

Paul Jay, along with Sharmini Perez, is a co-founder of The Real News Network, an alternative web-based news site.  Last summer they left or were ejected from the organization for reasons unknown to the public.  Jay has started a new podcast called theAnalysis.news.

In the interview, Ferguson made the point that, in the recent bailout, Congress chose to bail out big businesses with the expectation that this would enable them to hire laid-off and idled workers.

Instead, he said, most of the CEOs decided to keep the money and let working people fend for themselves.  Ferguson said it would have been far better to provide individual relief.  They would have spent money and helped to revive the economy when the lockdown ended.

Congress also should have provided aid to cash-strapped state, county and municipal governments, he said.  One economic effect of the lockdown has been to choke off tax revenue they need to provide essential services.  The federal government, unlike the states, has the power to create money and isn’t limited, as many states are, by constitutions requiring balanced budgets.

LINKS

Big Business Takes Cash As Workers Laid Off, States and Cities Go Bust, an interview of Thomas Ferguson by Paul Jay for theAnalysis.news.  A bit long, but comprehensive and highly recommended.

The economic consequences of the lockdown (2)

Click to enlarge. Via Ian Welsh

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Click to enlarge. Via Calculated Risk

Looking at these numbers, I can understand why some U.S. governors are eager to end the lockdown and get people back to work.  But the economic system isn’t something you can turn on and off like an appliance.  The impact of business losses, wage losses and job losses won’t be wiped out by a re-opening,

There weren’t any good choices in dealing with the coronavirus pandemic, even if you decide to consider nothing except dollars and cents.  Sick, dying and scared people are bad for business, whether you have a government-ordered lockdown or not.

Also, the U.S. economy was fragile to begin with.  We U.S. citizens never fully recovered from the previous recession.  We were due for another one anyway.

Elizabeth Warren on the next recession

Elizabeth Warren wrote a good article about how another recession is on the way, and it will be as bad as the previous one because U.S. policymakers didn’t learn the lessons of 2008.

The economic cycle of growth and recession seems to be inherent in a capitalist economy that uses financial markets.  There are many theories as to why this should be so.

Elizabeth Warren

But the 2008 recession was much worse than the ones that came before because the economic expansion was based on debt that could not be repaid.  I give myself credit for foreseeing this.

My foresight, however, was of little value because I could not foresee when the crash would come.   When it happened, it was as big a surprise to me as it was to everybody else I knew.

The problem of debt overhang has not been fixed.  Nobody has really tried—neither Presidents Obama and Trump, the Democratic and Republican leaders in Congress or the supposedly nonpartisan Federal Reserve Board.

Instead public policy has been concentrating on propping up the financial markets, mainly by holding down interest rates.  People with savings are forced into the risky financial markets if they want to keep their savings from being eroded by inflation.

Everything that made the 2008 recession so bad has been left in place

Now there is an inverted yield curve—that is, interest rates on short-term debt are higher than for long-term debt.

Usually rates on long-term debt are higher because of greater risk.  An invested yield curve is almost always a sign that investors think a recession is coming soon.

We need public policy of debt forgiveness for individuals, limits on corporate debt to what’s repayable and investment in the real economy, especially manufacturing.

Chris Hedges on the coming collapse

Chris Hedges wrote last week about the next financial crash.

Wall Street banks have been handed $16 trillion in bailouts and other subsidies by the Federal Reserve and Congress at nearly zero percent interest since the 2008 financial collapse.

They have used this money, as well as the money saved through the huge tax cuts imposed last year, to buy back their own stock, raising the compensation and bonuses of their managers and thrusting the society deeper into untenable debt peonage.

Chris Hedges

Sheldon Adelson’s casino operations alone got a $670 million tax break under the 2017 legislation.  The ratio of CEO to worker pay now averages 339 to 1, with the highest gap approaching 5,000 to 1.  This circular use of money to make and hoard money is what Karl Marx called “fictitious capital.”

The steady increase in public debt, corporate debt, credit card debt and student loan debt will ultimately lead, as Nomi Prins writes, to “a tipping point—when money coming in to furnish that debt, or available to borrow, simply won’t cover the interest payments.  Then debt bubbles will pop, beginning with higher yielding bonds.”

An economy reliant on debt for its growth causes our interest rate to jump to 28 percent when we are late on a credit card payment.  It is why our wages are stagnant or have declined in real terms—if we earned a sustainable income we would not have to borrow money to survive.

It is why a university education, houses, medical bills and utilities cost so much. The system is designed so we can never free ourselves from debt.

However, the next financial crash, as Prins points out in her book Collusion: How Central Bankers Rigged the World, won’t be like the last one.  This is because, as she says, “there is no Plan B.”

Interest rates can’t go any lower. There has been no growth in the real economy. The next time, there will be no way out. Once the economy crashes and the rage across the country explodes into a firestorm, the political freaks will appear, ones that will make Trump look sagacious and benign.

Source: Truthdig

Trump as a possible one-term President

I think there is a strong possibility that Donald Trump will be a one-term President—provided there are still free and fair elections in 2020.

I think that for the same reasons I thought Hillary Clinton might be a one-term President.  I believe there will be another recession, as serious as the last, during the next four years, and I think Trump will be even less able to cope with it than Clinton.

He campaigned as a populist champion of the common people against the elite.  But he spent his life among the elite, and his business history shows that he is only tough with those with less wealth and power than he has.

Trump kicks downward.  He  doesn’t punch upward.

His transition team is drawn from K street lobbyists.   His preference is to appoint from the private sector, not from government or academia.

His likely choice for Secretary of the Treasury is Steven Mnuchin, his campaign finance chairman.  Mnuchin is CEO of an investment firm called Dune Capital Management, but, according to POLITICO, he worked 17 years for Goldman Sachs, whose subprime mortgage manipulations were a big contributor to the last recession.

The problem is that, in a recession, what makes sense for a business owner doesn’t make sense for a President.  A business owner’s instinct in tough times is to cut back.  That is rational behavior for the individual, but cutting back means less money in circulation, less economic activity and a worse recession.

The biggest human-created economic problem

These two charts, which I found on a blog called PeakProsperity, show the world’s fundamental human-created economic problem.

The problem is the fact that debt is increasing faster than economic output.

This is not just true in the United States.  It is true of all the world’s advanced industrial countries.

The results of increasing debt are:

• An upward redistribution of income from wealthy lenders to non-wealthy borrowers.
• A diversion of capital away from investment in production to produce new wealth.
• Another recession, worse than the last, because, as Michael Hudson says, debt that can’t be repaid, won’t be.

The United States and other industrial countries have treated the big banks and investment houses as too big to fail and their executives as too important to jail.

But at some point, either in this economic cycle or the next or the one after that, the bank failures will be too big to bail.

I like to think that the debt problem is caused by malfeasance of bankers and the wealthy.   The reason I like to think so is that this is a solvable problem.

The worse possibility is that the possibilities for economic growth have been exhausted, and that there is nothing left to invest in that is as profitable credit card debt, student debt and other forms of debt.

If I voted strategically …

If I voted strategically, instead of for the candidate I want to win, I probably would vote for Hillary Clinton in the New York Democrat primary and for the Republican candidate in the general election.

The reason is that whoever is President from 2017 to 2021 is going to be blamed for the next stock market crash — unless it happens later in the current year — and it almost certainly will be worse than the 2008 crash.

It will be worse than the one before because nothing has been done to address the abuses that caused the previous crash—neither punishing accounting control fraud, nor breaking up the “too big to fail” banks, or curbing reckless speculation, nor creating good jobs, nor reducing income inequality.

The main thing that is propping up the financial markets is the Federal Reserve Board’s lid on bank interest rates, which drives investors into the stock and bond market, and this cannot go on forever.

If the Presidency is held by defenders of the status quo, it will be easier in 2020 for progressives to make the case for changing the status quo.