Is the US Economy Heading for Recession?

Posted on May 5, 2016 by Reid Mukai

By Jack Rasmus

This past week the U.S. government announced the country’s economy rose in the January-March 2016 at a mere 0.5 percent annual growth rate. Since the U.S., unlike other countries, estimates its GDP based on annual rates, that means for the first quarter 2016 the U.S. economy grew by barely 0.1 percent over the previous quarter in late 2015.

Growth this slow indicates the US economy may have “slipped into ‘stall speed’, that is, growth so weak that the economy loses enough momentum and slides into recession”, according to economists at JPMorgan Chase.

Has the U.S. economy therefore come to a halt the past three months? If so, what are the consequences for a global economy already progressively slowing? What will an apparently stagnating US economy mean for Japan, already experiencing its fifth recession since 2008? For Europe, stuck in a long term chronic stagnation? And for emerging market economies, struggling with collapsing commodity prices and currencies, rising unemployment, and long term capital flight trends? Once heralded as the only bright spot in the global economy, the US economy now appears to have joined the slowing global trend.

Some Interesting Trends

Last quarter’s 0.5 percent U.S. GDP may indicate the nation’s economy is even weaker than it appears. The economy of the United States’ recent 0.5 percent growth rate is the latest in a steady declining U.S. GDP growth trend over the past year. In the previous fourth quarter 2015, the US economy grew 1.4 percent, which was down from the preceding quarter’s growth of 2 percent and before that 3.9 percent. So the U.S. economy appears to be slowing rapidly over the past year.

Over an even longer period of more than eight years, since the previous peak growth in late 2007, the U.S. economy has grown by a cumulative total of only 10.1 percent. That’s a paltry annual growth of only 1.2 percent a year on average for the past 8+ years.

But even those figures are overestimated. In 2013, the U.S. redefined the way it estimated GDP, adding categories like R&D expenses and other intangibles that artificially boosted U.S. GDP estimates simply by redefining it. That “economic growth by redefinition” raised GDP by around 0.3 percent annually, and in dollar terms by roughly US$500 billion annually. So the real U.S. GDP may be actually growing by less than 1 percent on average per year since 2007; and during the most recent quarter, January-March 2016, the economy may not have grown at all, but may have stagnated, collapse, and come to a halt.

Behind the Wizard’s Curtain

The media and press like to define recessions as two consecutive quarters of negative GDP growth. Actually, U.S. economists tasked with declaring when a recession has begun or has ended don’t rely totally on GDP estimates, which are notoriously inaccurate and have become increasingly so, given U.S. and other governments’ penchant for changing how they define GDP.

Redefining GDP to boost the appearance of growth is not just a problem in the US in recent years. For example, there are few independent research sources that think China is growing at its officially announced 6.8 percent GDP rate. To note but a couple, both Capital Economics and Lombard Street research estimate that China’s GDP is growing at only around 4-4.5 percent based on close examination of other indicators like electricity usage, power generation, local transport volumes, and so forth. In recent years India officially nearly doubled its GDP overnight by redefining it. So did Nigeria. India bank researchers, whom this writer has talked to, say they have a rule of thumb: take the official government GDP rate and half it and that’s probably close to India’s actual GDP. In Europe, a number of economies, including Britain, which have been desperate to raise their GDP in recent years, now include drug smuggling and prostitution services in their estimates of GDP. How they come up with such estimates and the pricing of such services is, of course, interesting.

Not satisfied with the media-press definition of a recession as two consecutive quarters of negative GDP, US economists at the National Bureau of Economic Research, who are tasked with declaring the beginning and end of a recession, look at various economic indicators — like industrial production, retail sales, exports-import trends, and other sources. A recession may occur in just one quarter; or may require more than two.

Looking at these other indicators for this past January-March 2016 period, the US economy appears even more likely headed for a recession and sooner rather than later.

US industrial production (manufacturing, mining and utilities) declined at an annual rate of -2.2 percent this past quarter, after having declined -3.3 percent the preceding quarter. Industrial production has fallen six of the last seven months. US industrial capacity is now at its lowest point since 2010.

Business investment is another trouble spot. Investment in business structures fell by -10.7 percent and investment in new equipment by -8.6 percent, the latter the biggest drop since the 2007-09 recession. Business inventories rose barely, by the smallest amount in two years, continuing a slowing trend of the past nine months.

And what about consumption, which constitutes about two thirds of the total US economy? US consumer spending has been growing at an average monthly rate of only 0.1 percent. Retail sales, the largest element of consumer spending, has fallen every month on average during the quarter. After having sustained retail sales in previous years, auto sales, a large component of retail sales, declined for the second consecutive quarter during the January-March period. The outlook for U.S. consumer spending recovery is also not too bright. A recent Gallup poll reported that 60 percent of those interviewed indicated the U.S. economy was “getting worse.” Reflecting the poor demand for consumer goods, U.S. consumer prices now hover on the brink of deflation, falling at an average monthly rate of -0.1 percent for the quarter.

Exports are declining, residential housing construction recently plummeted. In other words, not many of the economic indicators that comprise GDP show a promising picture. GDP should probably be even lower than the recently reported 0.5 percent annual and 0.1 percent quarter to quarter growth rates. The U.S. economy has obviously “stalled.” But it’s not the first time. In fact, it’s the fifth time it has since the official end of the last recession in June 2009.

What’s a Relapse?

The performance of the US economy this past January-March, a trend that appears is continuing into April, represents what this writer has called an ‘economic relapse’. A relapse is a collapse of economic growth for a single quarter, to near zero or even negative growth.

The U.S. economy has experienced now five such single quarter relapses since the 2007-09 recession was officially declared over. The economy collapsed to 0.1 percent in early 2011, to 0.2 percent in late 2012, declined again by -2.2 percent in 2014 and collapsed to 0.2 percent in 2015.

Relapses are the consequence of “epic” recessions such as occurred in 2007-09, which are typically characterized by short, shallow recoveries that slip repeatedly into periodic bouts of renewed stagnation. They are the result of near total reliance on central bank monetary policies that are designed to boost stock, bond and other financial markets — and thus the incomes of rich investors — but which fail to generate a sustained real economic recovery. Fiscal policies designed to stimulate consumption and good paying jobs are rejected. That almost perfectly describes U.S. economic policy the past eight years.

Politicians Wearing Rose-Colored Glasses

Despite the facts, U.S. government politicians and Federal Reserve bank officials continue to run around declaring that the U.S. economy is performing well. They like to cite the 200,000 jobs allegedly created in recent months. But a closer examination shows the jobs being created are part time, temp, contract, low paid, no benefit service jobs. Jobs that generate no overall wage increase for the economy and no real income gains for working people.

Young workers 30 years old or less are especially hard hit by this “‘well performing US economy.” A recent study by the Center for American Progress, for example, showed that 30 year old workers earn today the same pay, adjusted for inflation, that 30 year olds earned back in 1984.

Despite all that, President Obama continues to tour the country complaining that he doesn’t get enough credit for bringing the US back from the worst recession since the 1930s depression. He should tell that to the millions of millennial young workers, with low paid crappy service jobs, with no medical insurance, having to live at home with relatives because they can’t afford to rent an apartment, loaded with debt and with no prospects for meaningful change on the horizon. No wonder they’re rallying around Bernie Sanders, who continues to capture 85 percent of their votes in the presidential primaries. Obama (and Hillary) will have a hard time convincing them “all is well” — and an even harder time getting them to vote Democrat in the coming election in November.

Jack Rasmus is author of the recent, 2016 book “Systemic Fragility in the Global Economy,” by Clarity Press, soon translated into a Chinese edition, and the forthcoming June 2016 book, “Looting Greece: The Emerging New

How Do You Know When Your Society Is In The Midst Of Collapse?

Posted on May 4, 2016 by Reid Mukai

By Brandon Smith

Source: Activist Post

As economic turmoil worldwide becomes increasingly apparent, I have been receiving messages from readers expressing some concerns on the public “perception” of collapse. That is to say, there are questions on the average person’s concept of collapse versus the reality of collapse. This is a vital issue that I have discussed briefly in the past, but it deserves a more in-depth analysis.

What is collapse? How do we define it? And, are some of the notions of collapse in the public consciousness completely wrong?

It’s funny, because skeptics opposed to the idea of a U.S. collapse in particular will most often retort with a question they think I cannot or will not answer – “So, Mr. Smith, when specifically is this supposed collapse going to take place? What day and time?”

My response has always been – “We’re in the middle of a collapse right now; you really can’t see it right in front of your sneering face?”

The reason these people are incapable of grasping this kind of answer is in large part due to the popular mainstream conceptions of systemic collapse. These are conceptions that are for the most part delusional and not in line with the facts. The public idea of collapse comes predominantly from Hollywood, and not from personal experience. For the masses (and some preppers, unfortunately), a collapse is an “event” that happens visibly and usually swiftly. You wake up one morning and behold; the television and phones don’t work anymore and zombies are at your doorstep! Yes, it’s childish and cartoonish, but anything less than a Walking Dead/Mad Max scenario and many people act as if all other threats are benign.

This is the driving reason why many Americans are absolutely oblivious to the economic instability that is rampant and blatant within our system the past few months. They might see the same signals that alternative analysts see, but these signals do not register in their brains as dangers.

Look at it this way; say you told a person their whole life that a tiger is a 10-foot tall behemoth with four heads that breathes fire while urinating flesh-rending acid. Say you make movies and TV shows about it and they never have any experience to the contrary. When they finally come across a real tiger, they might try to pet the damn thing instead of running in terror or searching for a means of defense.

To use another vicious animal analogy, when I encounter skeptics with false assumptions of what a collapse actually is, I am often reminded of that woman in Anchorage, Alaska who jumped an enclosure fence at the zoo to get a closer picture of Binky the polar bear. These people have been made so inept when it comes to identifying threats that they will continue arguing with you as the animal takes a football-sized bite out of their meaty thigh.

So what is the root of the problem beyond Hollywood fantasies? Well, the problem is that social and economic collapse is not a singular event, it is a PROCESS. Collapse is a series of events that sometimes span years. Each event increases in volatility over the last event, but as time goes on these events tend to condition the masses. The public develops a normalcy bias towards crisis (like the old “frog in a boiling pot” analogy). They lose all sense of what a healthy system looks like.

It is not uncommon for a society to wade through almost a decade or more of violent decline before finally acknowledging the system is imploding on a fundamental level. It is also not uncommon for societies to endure years of abuse by corrupt governments before either organizing effectively to rebel, or caving in and submitting to totalitarianism.

But how does one recognize a failing system? How does a person know if they are in the middle of a collapse rather than on the “verge” of collapse? Here are some signals I have derived from research of various breakdowns in modern nations and why they indicate we are experiencing collapse right now…

The Criminals Openly Admit To Their Crimes

The surest way to know if your society is in the midst of disintegration is to see if the criminals who created the instability in the first place are openly discussing a collapse scenario or warning that one is imminent.

A year ago, central bankers presented little more than a chorus of recovery propaganda. Today, not so much. The Royal Bank of Scotland is now warning investors to “sell everything” ahead of a “cataclysmic” year in markets.

The Federal Reserve’s Richard Fisher has admitted that the Fed “frontloaded” (manipulated) stock markets into a bubble and that payment is about to come due in the form of severe economic volatility (up to 20% crash in equities).

The Bank for International Settlements, the central bank of central banks, has a track record of warning the public about collapse conditions – right before they happen, leaving little or no time for people to prepare. They have followed their habit by warning in September and December that a Fed rate hike would “shatter” the uneasy calm in markets.

The former Chief Economist of the BIS now says the economy is in worse shape than it was in 2008 and is headed for a larger fall.

What happened between last year and this year and why are these internationalists suddenly so forthcoming about our economic reality? The fact that central bankers are the cause of our current collapse leads me to believe that such admissions are designed to deflect guilt. If they put out a few warnings now, they can then later claim they are prognosticators rather than culprits, and that they were trying to “help us.” Beyond that, the reality is that our situation was just as dire in 2014/2015 as it is today; the difference is that now we are about to enter a new phase in the ongoing collapse, a much more detrimental phase, but still a phase of a breakdown that has been progressing since at least 2008.

The Fundamentals Break Through The Manipulation Barrier

Governments and central banks do not have the capacity to artificially create demand for goods or a supply of well-paying jobs in a crashing economy. What they can do, though, is hide the visible problems in supply and demand with false numbers.

I examined such false economic statistics in great detail last year in a six-part series titled “One Last Look At The Real Economy Before It Implodes.” I will not cover them all again here. I would only point out that recently the fundamentals of supply and demand have begun to break through the deceit of manipulated numbers, and this is a sign that the collapse is about to move from one stage to the next.

With global shipping and trucking freight in steep decline, with retail inventories in stasis and current oil consumption falling to levels not seen since 1997 despite a larger population, the mainstream can no longer deny that consumer demand is crumbling. If demand is falling dramatically, then the financial system is in the middle of falling dramatically; there is simply no way around this truth.

Stocks And Commodities Become Violently Erratic

Let’s be clear, if stock markets represent anything at all, they are merely lagging indicators of economic instability. Stock markets are NOT predictive indicators of anything useful. Therefore, any person who does nothing but track equities each day is going to be completely oblivious to the bigger picture behind the economy until it is too late. They will be so mesmerized by the green numbers and red numbers and lines on minute-to-minute graphs that they will lose all sense of reality.

Violent swings in stocks are a sign of a financial system that is at the middle or end of the collapse process, not the beginning.

It is also important to note that extreme shifts in stocks and commodity values to the upside are just as much a signal of instability as shifts to the downside. For instance, if you witnessed the recent 9% explosion in oil markets and thought to yourself “Ah, the markets are being stabilized again and nothing is different this time…”, then you are an idiot.

Of course, the next day oil markets lost almost all of the gains they made the day before. And this is how markets behave when they are about to die; they expand and implode chaotically each day on nothing more that meaningless news headlines rather than hard data. This heart attack in equities inevitably trends downwards as the weeks and months pass. Keep in mind, equities are down nearly 10% from their recent highs, and oil is down approximately 50% in the past six months. Every time there is a dead cat bounce in stocks skeptics come out of the woodwork to call alternative analysts “doomers”, yet they are nowhere to be found when markets come crashing back down. They are not looking at the overall trend because their short attention spans hinder them. Again, extreme swings in markets, whether up or down, are a sign of progressing collapse.

Deterioration Of Cultural Values, Heritage And Identity

I have written extensively over the years about the Cloward-Piven strategy; a strategy used by collectivists to destabilize social systems by dumping overt numbers of foreign immigrants into the population without demand for integration. This process has been obvious in the U.S. and Europe for quite some time, but only now is it peaking to the point that collapse is seen as an inevitable result by the public. Europe is worse off than the U.S. in this regard as millions upon millions of Muslim immigrants are injected into the EU’s already dying body; immigrants that intend to transplant their culture from their own failed societies rather than adopting the values and principles of the societies that have invited them in.

Natural-born Americans and legal immigrants with aspiration of integration appear to be fighting back against the Cloward-Piven strategy with some success by holding onto traditional American values despite being labeled “barbarians” and “racists.” Illegal immigration, though, is still completely unchecked.

In the EU, the long campaign of cultural Marxism has made natural-born Europeans perhaps the most self-hating people on the planet as well as the most passive and weak. Organized opposition to massive immigration programs in the EU should have taken place years ago. Now it is far too late, and the European system is finishing a social implosion which should have already been obvious to average citizens.

Open Discussion Of Totalitarian Measures

When corrupt leadership moves from quiet totalitarianism to more open totalitarianism, your society is in the FINAL stages of collapse, not the beginning of a collapse. The U.S. in particular has been slowly strangled with subversive legal directives and political policies ever since the so called “War on Terror” began. However, there are now multiple signals of a much deeper and open tyranny in the works.

A few recent examples stand out, including Barack Obama’s insistence that the office of the president has the legal authority to issues executive orders that affect constitutional protections such as the 2^nd Amendment. As many liberty movement activists are aware, there is absolutely no constitutional precedent for the use of executive orders and such powers are not mentioned anywhere in the document. They were simply created out of thin air to be used by the federal government and sometimes state governments to supersede normal checks and balances.

While numerous presidents have issued executive orders, including some that were outright tyrannical, like Franklin Delano Roosevelt’s unconstitutional internment of Japanese Americans into concentration camps, George W. Bush and Barack Obama have been the most subversive in their bypassing of the Constitution. Obama, in particular, has tried to hide the number of executive actions he has taken by issuing hundreds of “presidential memorandums,” which are basically the same dirty play by another name.

These actions have been progressively setting the stage for the removal of checks and balances entirely in the name of crisis management. They are so broad in their nature and vague in their definitions and applications that they could be interpreted by federal authorities to mean just about anything in any given situation.

If executive actions are not scary enough, corrupt politicians are now becoming blunt in their demands for dominance. Two Republican Senators, Mitch McConnel and Lindsay Graham, are calling for unlimited AUMF-style (authorization of use of military force) war powers to be given to the president. Such powers would allow the president to project U.S. military forces anywhere in the world for any reason without review or time limits. This includes the use of military forces on U.S. soil.

The rationale for this is, of course, the threat of ISIS. The same group of terrorists the U.S. government helped to create.

And finally, if you want perhaps the most nonchalant admission of future tyranny in recent days, check out former General Wesley Clark’s call for “disloyal” Americans to be placed in internment camps through the duration of the war on terror, a war that could ostensibly go on forever.

One could argue that all of these measures are meant only to deter “Islamic extremism.” I would point out that government officials could have stemmed that tide at any time by enforcing existing immigration laws, or, by stopping all immigration for a period of years until the problem is handled. Instead, they have allowed open borders to remain, and have even imported potential terrorists while focusing Department of Homeland Security efforts more on evil white guys with guns.

If we accept the violation of the constitutional rights of any group of citizens, if we allow the concept of “thought crime” to become commonplace, then we leave the door open to the violation of our own rights someday. And that is how tyrants trick populations through incremental collapse; by applying despotism to a claimed dangerous minority, then expanding it to everyone else.

America is sitting near the end of the spectrum in terms of economic collapse and in the middle of the spectrum in terms of social collapse. While more violent events are certainly gestating and are likely to be triggered in the near term, we should not overlook the reality that collapse is happening in stages all around us. This process gives us at least some time. All is not lost yet, and the steps we take to organize and prepare today will affect how the collapse process unfolds tomorrow. People who continue to ignore the outright evidence of collapse based on false assumptions of what collapse should look like are only preventing themselves from taking proper action until it is too late. Make no mistake, our system is dying. We cannot allow our false perceptions of this death to cloud the reality of it, or our response to it.

You can read more from Brandon Smith at his site Alt-Market.com. If you would like to support the publishing of articles like the one you have just read, visit our donations page here. We greatly appreciate your patronage. You can contact Brandon Smith at: brandon@alt-market.com

The Slow, Inevitable Collapse of the Two-Party System

Posted on April 4, 2016 by Reid Mukai

By Russell A. Whitehouse

Source: Strategic Culture Foundation

In this election year, it’s clear that a seismic political shift is rumbling through America. Widespread discontent for the status quo is surfacing from both the left and right. A year ago, it would have been impossible to envision a card-carrying socialist and a pre-WWII style populist mounting legitimate presidential campaigns (much less without Super PACs). Now, far-left and far-right sentiments are emerging from the underground as perfectly palatable options to Middle America. Establishment darlings like Hillary Clinton, Jeb Bush & Marco Rubio have faced extreme pressure from the New Normal in their respective political tents.

It has become clear that the traditional 2-party system in America is starting to erode. Sanders’ supporters view Clinton as too untrustworthy & beholden to Big Business. Meanwhile Trump’s blue-collar base has rejected rank-and-file Republicans as being too unsympathetic to their economic concerns, while his surprising chunk of the evangelical contingent is refuting the Bush-flavored puritanism of Ted Cruz. Conversely, Clinton’s supporters reject Sander’s bold platform as delusional and Cruz’s base is increasingly being filled by #NeverTrump neocon purists and Romey-ite country club Republicans.

One can see political parallels across the pond, in the UK’s 2015 Parliamentary elections. The two main parties in Westminster Palace, Conservative and Labour (roughly equivalent to the GOP and Democrats), were shaken up by two popular insurgencies. UKIP, the UK Independence Party, rose up from the rising flames of the relatively conservative British heartland’s fears of free trade in the EU and immigration, winning an eighth of the popular vote in England. To the north, SNP, the Scottish National Party, won 95% of Scotland’s seats by inspiring among other things, record youth turnout and social media support (sound familiar?), with a message of social democracy and defiance against the British status quo.

Intra-party schisms are also forming in the two Anglophone democracies. The Tories are tearing themselves apart over the Brexit, austerity and jockeying to succeed Cameron as Party Leader, while the American neocons are assessing the fallout of Trump’s ascendance while in free fall. Labour officials are debating whether to follow their insurgent leader Jeremy Corbyn to the far Left after 20 years of Tony Blair’s New Labour movement, which moved the party to the center to win back the support of big business and blue-collar voters. The New Labour centrist putsch coincided with Bill Clinton (and later Obama’s) similar efforts as the face of the Democrats. Now, Democratic voters are beginning to second-guess this political realignment, spearheaded by the presumptive Democratic nominee’s husband. Her opponent Bernie Sanders is siphoning away the youth vote and blue-collar moderates from the Democratic establishment, two of the Party’s traditional constituencies, by railing against neoliberal policies like free trade and social welfare cuts.

Given the rise of social-democratic populism and nativist-protectionist populism to either flank of American politics, it would make sense to look at the formation of entirely new parties. Bernie Sanders can form a Stars-and-Pinstripes version of SNP; he too has the momentum of a more secular, progressive generation reaching political maturity as the more religious, conservative Baby Boomers begin to die out. Assuming Trump completes his takeover of the Grand Old Party at July’s convention, the neocon brain trust can form a new conservative movement; this is already being planned by members of the #NeverTrump triad. Evangelical and free market diehards can unite to mount a serious challenge to Trump’s right by fielding a Texas crusader like Ted Cruz or Rick Perry, or Mormon elder statesman Mitt Romney.

Regardless of how Trump and Sanders fare in their respective conventions, they could still operate a serious race for the White House. Both New York loudmouths boast a gigantic wave of rabid new voters, as well as a wellspring of working-class Americans desperate to reverse Wall Street’s increasingly oligarchical dominance, mass layoffs/underemployment, stagnant wages, crumbling infrastructure & the other byproducts of the neoliberal-neoconservative economic policy alliance. Sanders could march into November as the nominee of the new Democratic Socialist Party, with a trail of young, idealistic future leaders tweeting and live-streaming behind him. Depending on July’s RNC, we could see a Make America Great Again Party (MAGAP, for short) trumpeting Trump’s message of putting power back in the hands of the American working class or a Romney-Cruz True Conservatives Party ticket touting Christian piety and Wall St fiscal policy.

Get used to Sanders, Clinton, Trump & Cruz. You may see all 4 of them, come November…

A Warning From the B.I.S.: the Calm Before the Storm?

Posted on March 17, 2016 by Reid Mukai

By Mike Whitney

Source: CounterPunch

The Bank for International Settlements (BIS) is worried that recent ructions in the equities markets could be a sign that another financial crisis is brewing. In a sobering report titled “Uneasy calm gives way to turbulence” the BIS states grimly: “We may not be seeing isolated bolts from the blue but the signs of a gathering storm that has been building for a long time.”

The authors of the report are particularly concerned that the plunge in stock prices and the slowdown in global growth are taking place at the same time that investor confidence in central banks is waning. The Bank Of Japan’s announcement that it planned to introduce negative interest rates (aka–NIRP or negative interest rate policy) in late January illustrates this point. The BOJ hoped that by surprising the market, the policy would have greater impact on borrowing thus generating more growth. But, instead, the announcement set off a “second phase of turbulence” in stock and currency markets as nervous investors sold off risk assets and moved into safe haven bonds. The BOJ’s action was seen by many as act of desperation by a policymaker that is rapidly losing control of the system. According to the BIS:

“Underlying some of the turbulence of the past few months was a growing perception in financial markets that central banks might be running out of effective policy options.”

This is a recurrent theme in the BIS report, the notion that global CBs have already used their most powerful weapons and are currently trying to muddle-by with untested, experimental policies like negative rates that slash bank profitability while having little impact on lending.

While the BIS report provides a good rundown of recent events in the financial markets, it fails to blame central banks for any of the problems for which they alone are responsible. The sluggish performance of the global economy, the massive debt overhang, and the erratic behavior of the stock market are all directly attributable to the cheap money policies coordinated and implemented by central banks following the Great Recession in 2008. It’s hard to believe that the BIS’s failure to insert this fact into its narrative was purely accidental.

But the real problem with the BIS report is not that it refuses to assign blame for the current condition of the markets and the economy, but that it deliberately misleads its readers about the facts. While it’s true that China is facing slower growth, oil prices are plunging, emerging markets have been battered by capital flight, and yields on junk bonds are relentlessly rising, it’s also true that central bank policy is not primarily designed to address these problems, but to ensure the continued profitability of its main constituents, the big banks and mega-corporations. Keep in mind, the global economy has been sputtering for the last 6 years, but the BIS has only expressed alarm just recently. Why? What’s changed?

What’s changed is profits are down, and when profits are down, Wall Street and its corporate allies lean on the central banks to work the levers to improve conditions. Here’s more on the so called “earnings recession” from an article in the Wall Street Journal titled “S&P 500 Earnings: Far Worse Than Advertised”:

“There’s a big difference between companies’ advertised performance in 2015 and how they actually did.

How big? ….S&P earnings per share fell by 12.7%, according to S&P Dow Jones Indices. That is the sharpest decline since the financial crisis year of 2008. Plus, the reported earnings were 25% lower than the pro forma figures—the widest difference since 2008 when companies took a record amount of charges.

The implication: Even after a brutal start to 2016, stocks may still be more expensive than they seem. Even worse, investors may be paying for earnings and growth that aren’t anywhere near what they think. The result could be that share prices have even further to fall before they entice true value investors.” ( “S&P 500 Earnings: Far Worse Than Advertised“, Wall Street Journal)

Profits are down and stocks are in trouble. Is it any wonder why the BIS is running around with its hair on fire?

Also, corporate earnings have dropped for two straight quarters which is a sign that the economy is headed for a slump. Take a look at this clip from CNBC:

“Recessions have followed consecutive quarters of earnings declines 81 percent of the time, according to an analysis from JPMorgan Chase strategists, who said they combed through 115 years of records for their findings.”(CNBC)

“81 percent” chance of a recession?

Yep.

This is what the BIS is worried about. They could are less about China or the instability they’ve created with their zero rates and cheap money policies. Those things simply don’t factor into their decision-making. It’s all just fluff for the sheeple. Here’s more from Jim Quinn at Burning Platform:

“The increasing desperation of corporate CEOs is clear, as accounting gimmicks and attempts to manipulate earnings in 2015 has resulted in the 2nd largest discrepancy between reported results and GAAP results in history, only surpassed in 2008…..Based on fake reported earnings per share, the profits of the S&P 500 mega-corporations were essentially flat between 2014 and 2015…..earnings per share plunged by 12.7%, the largest decline since the memorable year of 2008….

With approximately $270 billion of “one time” add-backs to income used to deceive the public, the true valuation of the median S&P 500 stock is now the highest in history – higher than 1929, 2000, and 2007. Wall Street’s latest con game, with the active participation of corporate CEO co-conspirators, is a last ditch effort to fend off the inevitable stock market crash….All economic indicators are flashing red for recession. Stocks are poised for a 40% decline faster than you can say Wall Street criminal banks.” (“The Great Corporate Earnings Fraud“, Burning Platform)

Get it? When the profitability of the world’s biggest corporations are at stake, the central banks will move heaven and earth to lend a hand. This was the basic subtext of the discussions at the recent G-20 summit in Shanghai, China. The finance ministers and central bankers wracked their brains for two days to see if they could settle on new strategies for boosting earnings. In fact, the austerity-minded IMF even called on the G-20 to support a coordinated plan for fiscal stimulus to boost activity and decrease the risks to the equities markets. Unfortunately, finance ministers balked because fiscal stimulus puts upward pressure on wages and shifts more wealth to working stiffs. That’s why the idea was shelved, because the oligarchs can’t stand the idea that workers are getting a leg-up. What they want is a workforce that scrapes by on minimum wage and lives in constant fear of losing their job. The class war continues to be a top priority among the nations voracious CEOs and corporate bigwigs.

The “failed” G-20 summit was clearly a turning point for the markets. Now that the central banks are out of ammo, the only hope to keep stock prices artificially high rested on Keynesian fiscal stimulus injected directly into the real economy. That hope was extinguished at the meetings. The prospect that equities can continue to climb higher in the face of shrinking profits, tighter credit, slower growth and bigger corporate debtloads is unrealistic to say the least. Just check out this excerpt from a recent article at Bloomberg:

“Companies still have a little time before they must pay down the bulk of $9.5 trillion of debt maturing in the next five years….But it’s not getting any easier for these corporations to borrow, at least not in the U.S. In fact, many of these obligations are becoming harder and more expensive to repay at a time when companies face a historic pile of bonds and loans coming due.

It’s not terribly surprising that companies have a bigger debt load to pay down. They borrowed trillions of dollars on the heels of unprecedented stimulus efforts started by the Federal Reserve at the end of 2008 during the worst financial crisis since the Depression. They kept piling on the leverage as central banks around the world doubled down on low-rate policies and kept purchasing assets to encourage investors to buy riskier securities….”(“Scaling the $9.5 trillion debt wall, Bloomberg)

What the author is saying is that central bank policy seduced corporations into borrowing tons of money that they frittered-away on stock buybacks and dividends, neither of which create the revenue streams necessary to repay their debts. So rather than build their companies for the future, (Business investment is at record lows) corporations have been behaving the same way the Wall Street banks acted before the Crash of ’08. They’ve been borrowing trillions from Mom and Pop investors via the bond market, goosing their share prices through stock buybacks, increasing executive compensation, and dumping the money in offshore accounts. Now the bill is coming due, and they don’t have the money to repay the debt or the earnings-potential to avoid default. Something’s gotta give.

Corporate red ink is one of many reasons why the BIS thinks “We may not be seeing isolated bolts from the blue but the signs of a gathering storm that has been building for a long time.” Like the gigantic asset-price bubble in stocks, it’s a sign that the economy and the markets are headed for a long and painful period of adjustment.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

The Federal Reserve and the Global Fracture

Posted on March 16, 2016 by Reid Mukai

An Interview with Finnish Journalist Antti J. Ronkainen

Michael Hudson

Source: The Unz Review

Antti J. Ronkainen: The Federal Reserve is the most significant central bank in the world. How does it contribute to the domestic policy of the United States?

Michael Hudson: The Federal Reserve supports the status quo. It would not want to create a crisis before the election. Today it is part of the Democratic Party’s re-election campaign, and its job is to serve Hillary Clinton’s campaign contributors on Wall Street. It is trying to spur recovery by resuming its Bubble Economy subsidy for Wall Street, not by supporting the industrial economy. What the economy needs is a debt writedown, not more debt leveraging such as Quantitative Easing has aimed to promote. But the Fed is in a state of denial that the U.S. and European economies are plagued by debt deflation.

The Fed uses only one policy: influencing interest rates by creating bank reserves at low give-away charges. It enables banks too make easy gains simply by borrowing from it and leaving the money on deposit to earn interest (which has been paid since the 2008 crisis to help subsidize the banks, mainly the largest ones). The effect is to fund the asset markets – bonds, stocks and real estate – not the economy at large. Banks also are heavy arbitrage players in foreign exchange markets. But this doesn’t help the economy recover, any more than the ZIRP (Zero Interest-Rate Policy) since 2001 has done for Japan. Financial markets are the liabilities side of the economy’s balance sheet, not the asset side.

The last thing either U.S. party wants is for the election to focus on this policy failure. The Fed, Treasury and Justice Department will be just as pro-Wall Street under Hillary. There would be no prosecutions of bank fraud, there would be another bank-friendly Attorney General, and a willingness to subsidize banks now that the Dodd-Frank bank reform has been diluted from what it originally promised to be.

So let’s go back to beginning. When the Great Financial Crisis escalated in 2008 the Fed’s response was to lower its main interest rate to nearly zero. Why?

The aim of lowering interest rates was to provide banks with cheap credit. The pretense was that banks might lend to help the economy get going again. But the Fed’s idea was simply to re-inflate the Bubble Economy. It aimed at restoring the value of the mortgages that banks had in their loan portfolios. The hope was that easy credit would spur new mortgage lending to bid housing prices back up – as if this would help the economy rather than simply raising the price of home ownership.

But banks weren’t going to make mortgage loans to a housing market that already was over-lent. Instead, homeowners had to start paying down the mortgages they had taken out. Banks also reduced their credit-card exposure by a few hundred billion dollars. So instead of receiving new credit, the economy was saddled with having to repay debts.

Banks did make money, but not by lending into the “real” production and consumption economy. They mainly engaged in arbitrage and speculation, and lending to hedge funds and companies to buy their own stocks yielding higher dividend returns than the low interest rates that were available.

In addition to the near zero interest rates, the Fed bought US Treasury bonds and mortgage backed securities (MBS) with almost $4 trillion during three rounds of Quantitative Easing stimulus. How have these measures affected the real economy and financial markets?

In 2008 the Federal Reserve had a choice: It could save the economy, or it could save the banks. It might have used a fraction of what became the vast QE credit – for example $1 trillion – to pay off the bad mortgages and write them down. That would have helped save the economy from debt deflation. Instead, the Fed simply wanted to re-inflate the bubble, to save banks from having to suffer losses on their junk mortgages and other bad loans.

Keeping these debts on the books, in full, let banks foreclose on defaulting homeowners. This intensified the debt-deflation, pushing the economy into its present post-2008 depression. The debt overhead is keeping it depressed.

One therefore can speak of a financial war waged by Wall Street against the economy. The Fed is a major weapon in this war. Its constituency is Wall Street. Like the Justice and Treasury Departments, it has been captured and taken hostage.

Federal Reserve chairwoman Janet Yellen’s husband, George Akerlof, has written a good article about looting and fraud as ways to make money. But instead of saying that looting and fraud are bad, the Fed has refused to regulate or move against such activities. It evidently recognizes that looting and fraud are what Wall Street is all about – or at least that the financial system would come crashing down if an attempt were made to clean it up!

So neither the Fed nor the Justice Department or other U.S. Government agencies has sanctioned or arrested a single banker for the trillions of dollars of financial fraud. Just the opposite: The big banks where the fraud was concentrated have been made even larger and more dominant. The effect has been to drive out of business the smaller banks not so involved in derivative bets and other speculation.

The bottom line is that banks made much more by getting Alan Greenspan and the Clinton-Bush Treasury officials to deregulate fraud than they could have made by traditional safe lending. But their gains have increased the economy’s overhead.

Do you believe Mike Whitney’s argument that QE was about a tradeoff between the Fed and the government: the Fed pumped the new bubble and saved the banks that the government didn’t need to bail out more banks. The government’s role was to impose austerity so that inflation and employment didn’t rise – which would have forced the Fed to raise interest rates, ending its QE program? source: http://www.counterpunch.org/2016/01/15/the-chart-that-explains-everything/]

That was a great chart that Mike put up from Richard Koo, and you should reproduce it here. It shows that the Fed’s enormous credit creation had zero effect on raising commodity prices or wages. But stock market prices doubled in just six years, 2008-15, and bond prices rose to new peaks. Banks left much of the QE credit on deposit with the Fed, earning an interest giveaway premium.

(Richard Koo: “The struggle between markets and central banks has only just begun,”

http://www.businessinsider.com/richard-koo-struggle-between-markets-and-central-banks-has-only-just-begun-2015-9?r=UK&IR=T

The important point is that the Fed (backed by the Obama Administration) refused to use this $4 trillion to revive the production-and-consumption economy. It claimed that such a policy would be “inflationary,” by which it meant raising employment and wage levels. The Fed thus accepted the neoliberal junk economics proposing austerity as the answer to any problem – austerity for the industrial economy, not the Fed’s own Wall Street constituency.

According to a Fed staff report, QE would lower the exchange rate of dollar to the other currencies causing competitiveness boost for the U.S. firms. Former finance minister of Brazil Guido Mantega, as well as the chairman of Central Bank of India Raghuram Rajan, have described the Fed’s QE as a “currency war.” What’s your take?

The Fed’s aim was simply to provide banks with low-interest credit. Banks lent to hedge funds to buy securities or make financial bets that yielded more than 0.1 percent. They also lent to companies to buy their own stock, and to corporate raiders for debt-financed mergers and acquisitions. But banks didn’t lend to the economy at large, because it already was “loaned up,” and indeed, overburdened with debt.

Lower interest rates did spur the “carry trade,” as they had done in Japan after 1990. Banks and hedge funds bought foreign bonds paying higher rates. The dollar drifted down as bank arbitrageurs could borrow from the Fed at 0.1 percent to lend to Brazil at 9 percent. Buying these foreign bonds pushed up foreign exchange rates against the dollar. That was a side effect of the Fed’s attempt to help Wall Street make financial gains. It simply didn’t give much consideration to how its QE flooding the global economy with surplus dollars would affect U.S. exports – or foreign countries.

Exchange rate shifts don’t affect export trends as much as textbook models claim. U.S. arms exports to the Near East, and many technology exports are non-competitive. However, a looming problem for most countries is what may happen when ending QE increases the dollar’s exchange rate. If U.S. interest rates go back up, the dollar will strengthen. That would increase the cost to foreign countries of paying dollar-denominated debts. Countries that borrowed all dollars at low interest will need to pay more in their own currencies to service these debts. Imagine what would happen if the Federal Reserve let interest rates rise back to a normal level of 4 or 5 percent. The soaring dollar would push debtor economies toward depression on capital account much more than it would help their exports on trade account.

You have said that QE is fracturing the global economy. What do you mean by that?

Part of the flood of dollar credit is used to buy shares of foreign companies yielding 15 to 20 percent, and foreign bonds. These dollars are turned over to foreign central banks for domestic currency. But central banks are only able to use these dollars to buy U.S. Treasury securities, yielding about 1 percent. When the People’s Bank of China buys U.S. Treasury bonds, it’s financing America’s dual budget and balance-of-payment deficits, both of which stem largely from military encirclement of Eurasia – while letting U.S. investors and the U.S. economy get a free ride.

Instead of buying U.S. Treasury securities, China would prefer to buy American companies, just like U.S. investors are buying Chinese industry. But America’s government won’t permit China even to buy gas station companies. The result is a double standard. Americans feel insecure having Chinese ownership in their companies. It is the same attitude that was directed against Japan in the late 1980s.

I wrote about this financial warfare and America’s free lunch via the dollar standard in Super Imperialism (2002) and The Bubble and Beyond (2012), and about how today’s New Cold War is being waged financially in Killing the Host (2015).

The Democrats loudly criticized the Bush administration’s $700 billion TARP-program, but backed the Fed’s QE purchases worth of almost $4 trillion during the Obama administration. How does this relate to the fact that officially, QE purchases were intended to support economic recovery?

I think you’ve got the history wrong. My Killing the Host describes how the Democrats supported TARP, while the Republican Congress opposed it on populist grounds. Republican Treasury Secretary Hank Paulson offered to use some of the money to aid over-indebted homeowners, but President-elect Obama blocked that – and then appointed Tim Geithner as Treasury Secretary. FDIC head Sheila Bair and by SIGTARP head Neil Barofsky have written good books about Geithner’s support for Wall Street (and especially for Citigroup and Goldman Sachs) against the interests of the economy at large.

If you are going to serve Wall Street – your major campaign contributors – you are going to need a cover story pretending that this will help the economy. Politicians start with “Column A”: their agenda to reimburse their campaign contributors – Wall Street and other special interests. Their public relations team and speechwriters then draw up “Column B”: what public voters want. To get votes, a rhetorical cover story is crafted. I describe this in my forthcoming J is for Junk Economics, to be published in March. It’s a dictionary of Orwellian doublethink, political and economic euphemisms to turn the vocabulary around and mean the opposite of what actually is meant.

How do TARP and QE relate to the Federal Reserve’s mandate about price stability?

There are two sets of prices: asset prices and commodity prices and wages. By “price stability” the Fed means keeping wages and commodity prices down. Calling depressed wage levels “price stability” diverts attention from the phenomenon of debt deflation – and also from the asset-price inflation that has increased the advantages of the One Percent over the 99 Percent. From 1980 to the present, the Fed has inflated the largest bond rally in history as a result of driving down interest rates from 20 percent in 1980 to nearly zero today, as you have noted.

Chicago School monetarism ignores asset prices. It pretends that when you increase the money supply, this increases consumer prices, commodity prices and wages proportionally. But that’s not what happens. When banks created credit (money), they don’t lend much to people to buy goods and services or for companies to make capital investments to employ more workers. They lend money mainly to transfer ownership of assets already in place. About 80 percent of bank loans are mortgages, and the rest are largely for stocks and bond purchases, including corporate takeovers and stock buybacks or debt-leveraged purchases. The effect is to bid up asset prices, while loading down the economy with debt in the process. This pushes up the break-even cost of doing business, while imposing debt deflation on the economy at large.

Wall Street isn’t so interested in exploiting wage labour by hiring it to produce goods for sale, as was the case under industrial capitalism in its heyday. It makes its gains by riding the wave of asset inflation. Banks also gain by making labour pay more interest, fees and penalties on mortgages, and for student loans, credit cards and auto loans. That’s the postindustrial financial mode of exploiting labor and the overall economy. The Fed’s QE program increases the price at which stocks, bonds and real estate exchange for labour, and also promotes debt leverage throughout the economy.

Why don’t economists distinguish between asset-price and commodity price inflation?

The economics curriculum has been turned into an exercise for students to pretend that a hypothetical parallel universe exists in which the rentier classes are job creators, necessary to help economies recover. The reality is that financial modes of getting rich by debt leveraging creates a Bubble Economy – a Ponzi scheme leading to austerity and shrinking markets, which always ends in a convulsion of bankruptcy.

The explanation for why this is not central to today’s economic theory is that the discipline has been captured by this neoliberal tunnel vision that overlooks the financial sector’s maneuvering to make quick trading profits in stocks, bonds, mortgages and derivatives, not to take the time and effort to develop long-term markets. Rentiers seek to throw a cloak of invisibility around how they make money. They know that if economists don’t measure their wealth and the public does not see it, voters will be less likely to bring pressure to regulate and tax it.

Today’s central economic problem is that inflating asset prices by debt leveraging extracts more interest and financial charges. When the resulting debt deflation ends up hollowing out the economy, creditors try to blame labour, or government spending (except for bailouts and QE to help Wall Street). It is as if debtors are exploiting their creditors.

If there is a new class war, what is the current growth model?

It’s an austerity model, as you can see from the eurozone and from the neoliberal consensus that cites Latvia as a success story rather than a disaster leading to de-industrialization and emigration. In real democracies, if economies polarize like they are doing today, you would expect the 99 Percent to fight back by electing representatives to enact progressive taxation, regulate finance and monopolies, and make public investment to raise wages and living standards. In the 19^th century this drive led parliaments to rewrite the tax rules to fall more on landlords and monopolists.

Industrial capitalism plowed profits back into new means of production to expand the economy. But today’s rentier model is based on austerity and privatization. The main way the financial sector always has obtained wealth has been by privatizing it from the public domain by insider dealing and indebting governments.

The ultimate financial business plan also is to lend with an eye to end up with the debtor’s property, from governments to companies and families. In Greece the European Central Bank, European Commission and IMF demanded that if the nation’s elected representatives did not sell off the nation’s ports, land, islands, roads, schools, sewer systems, water systems, television stations and even museums to reimburse the dreaded austerity troika for its bailout of bondholders and bankers, the country would be isolated from Europe and faced with a crash. That forced Greece to capitulate.

What seems at first glance to be democracy has been hijacked by politicians who accept the financial class war ideology that the way for an economy to get rich is by austerity. That means lowering wages, unemployment, and dismantling government by turning the public domain over to the financial sector.

By supporting the banking sector even in its predatory and outright fraudulent behavior, U.S. and European governments are reversing the trajectory along which 19^th-century progressive industrial capitalism and socialism were moving. Today’s rentier class is not concerned with long-term tangible investment to earn profits by hiring workers to produce goods. Under finance capitalism, an emerging financial over-class makes money by stripping income and assets from economies driven deeper into debt. Attacking “big government” when it is democratic, the wealthy are all in favor of government when it is oligarchic and serves their interests by rolling back the past two centuries of democratic reforms.

Does the Fed realize global turbulences what its unconventional policies have caused?

Sure. But the Fed has painted itself in a corner: If it raises interest rates, this will cause the stock and bond markets to go down. That would reverse the debt leveraging that has kept these markets up. Higher interest rates also would bankrupt Third World debtors, which will not be able to pay their dollar debts if dollars become more expensive in their currencies.

But if the Fed keeps interest rates low, pension funds and insurance companies will have difficulty making the paper gains that their plans imagined could continue exponentially ad infinitum. So whatever it does, it will destabilize the global economy.

China’s stock market has crashed, western markets are very volatile, and George Soros has said that the current financial environment reminds him of the 2008 crash. Should we be worried?

News reports make it sound as if debt-ridden capitalist economies will face collapse if the socialist countries don’t rescue them from their shrinking domestic markets. I think Soros means that the current financial environment is fragile and highly debt-leveraged, with heavy losses on bad loans, junk bonds and derivatives about to be recognized. Regulators may permit banks to “extend and pretend” that bad loans will turn good someday. But it is clear that most government reports and central bankers are whistling in the dark. Changes in any direction may pull down derivatives. That will cause a break in the chain of payments when losers can’t pay. The break may spread and this time public opinion is more organized against 2008-type bailouts.

The moral is that debts that can’t be paid, won’t be. The question is, how won’t they be paid? By writing down debts, or by foreclosures and distress sell-offs turning the financial class into a ruling oligarchy? That is the political fight being waged today – and as Warren Buffet has said, his billionaire class is winning it.

That’s all for now. Thank you Michael!

Why Are We Still Working?

Posted on March 10, 2016 by Reid Mukai

intcap2

By Mike Dowson

Source: NewMatilda.com

This may be an opportune moment to consider the question. Especially if you’re not actually working.

You may have retired. Perhaps you’ve just left university, considering your options. Perhaps you’re taking a welcome break.

Maybe you have no choice but to take a break. Did you retire early because your job was axed? Has the casual work you depend on dried up? Have you been unable to find a job, despite your qualifications?

Perhaps, as you read this, you’re at work, filling in time, forgoing a holiday. Or at the beach, while the kids play in the surf, watching for emails on your phone.

Of course, it’s obvious why we work. Money. You don’t get something for nothing. And everything is so expensive these days.

If anything, most of us need to work more. Both spouses, extra hours, second jobs. Would anyone, except an idiot, seriously suggest we should all be working less?

Well, actually, yes.

As long ago as 1930, the economist John Maynard Keynes predicted that, by now, people in technologically advanced societies wouldn’t need to work much at all. When Keynes said this, advances in technology were yielding extraordinary increases in productivity. The implications seemed obvious. If it took less time to produce what we needed, surely we’d work less.

It turns out that for much of the 20^th Century average working hours in developed countries steadily fell. Then, around the 1970s, the trend plateaued. In some countries, it reversed and working hours began to climb again. This occurred at the same time women were entering the workforce in great numbers so total workforce participation also increased.

In Australia, by the new millennium, many full time employees were working more than their grandparents had.

What happened? Did technology fail to deliver the gains Keynes expected?

On the contrary. Technological advancement outstripped even the giddy imaginations of futurists from a century ago. We can grow food, dig up minerals, make fridges and bridges, move things and ourselves around the planet and share knowledge and information much faster with a fraction of the workforce it once took.

But if staggering productivity gains haven’t manifested as lower working hours, where did they go?

Some prominent economists, including some Nobel laureates, have grappled with this question.

Gary Becker observed that our appetite for material goods has expanded along with our ability to produce them. Instead of working less hours, we opted for bigger houses with more gadgets, which we replace more often.

This process has been fuelled by a deluge of marketing, which persuades us to consume things we previously didn’t recognise a need for.

Does that explain it? Anthropologist David Graeber doesn’t think so. If it continually takes fewer human hours to produce these things, shouldn’t we be able to afford them without working more? What are all these working hours producing?

Graeber argues that, although productive jobs have, in fact, been steadily automated away just as predicted, we have also seen a vast proliferation of new jobs that only seem to exist to keep people working.

Consider this. Productivity growth has stalled in Australia. How can this be? Technology hasn’t stopped advancing. The time we should be winning back through productivity gains must be getting reabsorbed.

Productivity returns are highest in capital-intensive industries like mining and manufacturing. As those jobs disappear, either replaced by technology, or lost altogether, the workforce moves into labour-intensive industries like hospitality and professional services. This dilutes the gains in the other industries.

At the same time, unemployment has been trending up since 2008. Young people especially, are out of work. The number of underemployed people, who would work more if they could, is also high. More jobs are casual.

There’s a downward trend in job prospects for new graduates. Some of them settle for part-time work or a free internship. Many find work which is unrelated to primary qualification. That’s now more likely to be in a job without benefits, or multiple such jobs.

There’s another factor. Our lives are now longer relative to our working lives. We tend to start full-time work later, after years of study, and more of life is spent in retirement. Many jobless older people are struggling with the cost of living. Many would work more if they could.

Instead of everyone working less, what seems to be happening is that experienced workers, in professions which are still in demand, are working more, while the young, the old, and those with skills which no longer attract investment have difficulty finding work.

MIT academics Andrew McAfee and Erik Brynjolfsson refer to this as the great decoupling. For many years, real GDP per capita and median income rose in tandem. Since the 1970s, wages as a percentage of GDP have fallen dramatically, while corporate profits as a percentage of GDP are now at their highest level, despite recurring economic shocks.

To put it simply, labour isn’t as important to growth as it used to be.

There is nothing in the economic outlook or current government policy settings which suggests this trend is going to change.

Automation, artificial intelligence and robotics are encroaching on more human occupations. The Committee for Economic Development of Australia (CEDA) has estimated that as many as 40 per cent of the jobs that are left are vulnerable to replacement by technology over the next decade.

No matter how many politicians chant the jobs mantra for the media, more productive jobs are going to disappear.

The terrible irony in this situation is that there is so much that needs to be done.

Among the underemployed graduates I personally know of, there is a psychologist, a soil chemist and a biodiversity specialist. Have we run out of things to do in the areas of mental health, agriculture and the environment?

Mental illness is widespread. Our food bowl is under threat from climate change. We have a mass extinction on our hands.

What we don’t have, apparently, is sufficient money to invest in making full use of the talent that is available to face these challenges.

Why? What failure of collective enterprise could result in this absurd incongruity?

Capital, like technology, is largely blind to human need. Capital goes where the profit is. If there was profit in healing minds and saving species, some of it would go there. While there is more profit in alcohol, gambling and deforestation, more of it will go there.

People don’t register their desire for a healthy society by shopping for it. Capital doesn’t get that signal through the market. The argument that consumers somehow direct the course of civilisation by choosing dolphin-friendly tuna and “eco” cleaning products is stupid and facile. The factors that most affect our destiny are not options in the supermarket.

If a healthy society is something we want, we have to act collectively. Since few people are active major shareholders, for the time being that task tends to fall to governments.

Whether enacted via direct spending, or by creating incentives for private investment, government initiatives are funded from collective surplus – in other words, tax revenue or borrowing against future earnings increases. Despite political spin to the contrary, our tax is low compared to the OECD as a proportion of GDP.

The great decoupling has coincided with rising inequality. Those with money to invest get rich. Those with only labour to sell miss out. Capital doesn’t like to pay for labour, and it doesn’t like to pay tax either.

But why, if our labour isn’t needed for profit, are we still working?

Faced with a looming crisis in social services, but committed ideologically to low taxation, successive Australian governments used tax concessions to turn superannuation and real estate – where most Australians keep their wealth – into a mini-capitalist alternative to social security.

Of course, this only works while people have jobs that provide super and sufficient income to buy housing. And it doesn’t help the real economy, the place where we apply technological innovation to produce things of real value, especially things we can export.

Nevertheless, one group of people enriched themselves through property investment, pushing up the value of real estate around the country in the process. Another group of people became affluent with nothing more than a job that paid super and a home in a good location.

With commodity revenue pouring in from overseas, it was easy to believe we had discovered some kind of magic prosperity formula. But the surplus generated from commodities mostly wasn’t invested back into productive activity. Instead it was turned into tax cuts and other benefits. These had broad electoral appeal but favoured the wealthy, and encouraged further speculation.

The real estate boom didn’t make the country richer. Nor did it make housing more accessible. It simply transferred wealth from one group of people to another. In the process, it put a basic need out of reach of many, including young people, and diverted investment from the productive economy. It also lured a huge number of Australians into precarious debt.

Contrary to popular opinion, encouraged by unscrupulous politics, we have relatively low government debt, but we now have the largest per capita private debt in the world.

So why are we still working? Because we’re in debt.

Middle-aged people are the ones working long hours. They’re also the ones buying houses. And they’re the ones with the most credit card debt as well.

The generation before them had affordable housing, job security and a real social safety net. They’re not so fortunate, but for the ones after them, a steady job with enough for a deposit has become a kind of Holy Grail, and social security is survival at best.

The current trend points to a time when a young graduate might start adult life with a HECS debt, go into credit card debt on a part-time job and a free internship, and eventually get into massive debt to own a flat her grandparents could have bought with ease.

She might even find a job in financial services, if they haven’t all been automated. It’s the sector that helps wealthy people turn their money into more money. It’s also where ordinary people go to borrow money for a house.

Debt is profitable. Even during the great decoupling, as productive jobs disappear, and real wages fall, it’s proven possible to harness the aspirations of ordinary people for profit, without any of the effort or intelligence required for developing new productive capacity, by simply enticing a greater proportion of personal income into servicing debt.

The mining boom is over. Not that it was ever as important as the miners like to claim. Manufacturing continues its long decline. The banks have been warned they are overexposed.

Whatever combination of policy levers is applied, we need to create the conditions that direct investment into producing things that we and the world need, while caring for our environment and our population. We don’t need to direct it in into unearned private wealth at the expense of our neighbours, our country and future generations.

Our current class of politicians has so far failed to even acknowledge our present circumstances, let alone articulate a credible vision for change. Many of them became rich from property investment. Our Prime Minister is a former banker.

Naturally, the people who’ve done well for themselves are reluctant to sacrifice their advantage. Nevertheless, we have to change the narrative around “wealth creation” from one which is essentially about personal enrichment from gaming the system, to one which is about mutual benefit through innovation and productivity.

Change has come, whether we like it or not. If we respond intelligently, taking advantage of the potential we have developed through our education system, we may very well end up working less, but not in a divided society, with many of us struggling to survive.

Rent Strikes: ‘together we can defeat the housing market’

Posted on March 3, 2016 by Reid Mukai

By Matt Broomfield

Source: RoarMag.org

As they revive a long-dormant form of protest, rent strikers in London and San Francisco must learn lessons from the great strikes of the 20th century.

When you can no longer afford to pay your rent, only one course of action remains: stop paying it. On both sides of the Atlantic, tenants are militating against the unbearable pressure of the housing market via the only locus of power available to them — going on rent strike.

Midtown Apartments, San Francisco

Jose LaCrosby was an African-American hair stylist to the stars. Nina Simone, James Brown and Miles Davis all frequented his San Francisco salon. Terminally ill at the age of 89, LaCrosby was told by his doctors that he should return to die among his friends in Midtown Apartments.

But the City of San Francisco had just hiked rents by up to 300 percent. If the Korean War veteran wanted to move back in to a ground-floor apartment it would now cost him $3700 a month. LaCrosby had lived in Midtown for two decades, but he spent the last 7 months of his life under fluorescent lights in an anodyne hospice ward, unable to afford the grossly inflated rent.

LaCrosby’s treatment is symptomatic of the way Midtown is being used as an asset to be stripped for cash, says long-time resident and Save Midtown organizer Jay Majitov. “This community is being displaced by the greed and avarice of property pimps preying on the weak and the disenfranchised,” he explains. Many of Majitov’s neighbors moved into Midtown after being socially cleansed from other areas of San Francisco in the 1960s, on what they understood was a rent-to-buy agreement.

But though Midtown paid off its collective mortgage in 2007, the city reneged on its agreement to hand the building over to the tenants. Instead, Midtowners were hit with a threefold increase in rent, far outstripping the maximum increase set by San Francisco rent controls. Appalled by this betrayal of trust, the tenants of 65 Midtown apartments have been withholding their rent increase since August 2015.

University College London

On the face of it, LaCrosby’s working-class neighbors in Midtown have little in common with the primarily middle-class, primarily white students of University College London. But the price of UCL accommodation has risen by 56 percent in the last six years, and the university extracts £16 million annually in pure profit from their residences. The halls remain shabby, cramped and infested with cockroaches.

As a result, around 150 students are currently striking for a 40 percent rent decrease. “UCL call residents in halls customers, not students,” says David Dahlborn of UCL, Cut The Rent (UCL-CTR). “It’s sheer exploitation.”

There have been rumblings about wider rent strikes across the British left for months, while US activists in Portland and elsewhere are now looking to copy Midtown’s example. Yet until a couple of years ago, no one was talking about rent strikes at all.

The problem(s) with rent strikes

Once a cornerstone of tenants’ rights activism, since the 1980s the rent strike has largely been absent from the arsenal of the left. The most famous rent strike in history occurred in 1915, when the fear of a Bolshevik insurrection forced the UK government to appease strikers in Glasgow by introducing rent controls. As the Communist threat faded after the second Red Scare, so too did the need to form housing policy with one eye on the Kremlin, and the government’s attitude toward rent strikers hardened accordingly.

Given that many rent strikes occurred in mutual relation with industrial strikes, their decline in popularity can partially be ascribed to the decimation of workers’ right to strike by Thatcher and her successors. The UK now loses a tenth as many days to industrial action as it did in the 1980s, and “strike” has become a politically toxic term. (UCL-CTR advise their activists to avoid the word altogether when door-knocking.) The fragmentation of the left and the castration of the trade unions have left Britain without left-wing superstructures capable of amplifying wildcat rent strikes into a broader social movement.

There are also delocalized issues inherent in the mode of protest. The vulnerable people who stand to gain the most from a reduction in rent are also those most imperiled by eviction: working-class people, people of color, single mothers and the disabled, often living in social housing. According to Jay Majitov, many Midtowners will be forced out of state or onto the street if their strike is broken. There is no legal protection for rent strikers in the UK or the USA.

Recrimination can be brutal: after the arrest of rent strikers in Kings’ Cross in 1960, crowds of protesters were baton-charged and violently dispersed by mounted police. Mary Barbour and her army of Glaswegian housewives were forced to fight off heavy-handed bailiffs with wet clothes, rotten food and flour-bombs. Barbour would stomp round the tenements whirling a football rattle to summon her troops as the “factor” moved in.

Midtown property managers Mercy Housing have kept up an aggressive campaign of intimidation, towing residents’ cars for minor infractions and muscling into pensioners’ homes. “They came in as an occupying force, a colonizer. There’s no regard for cultural sensitivity or the long-term tenants,” says Majitov. Tenants have been told they face eviction if their grandchildren visit more than twice a week, or if they hold barbecues on their own property. “I’m sorry, man, but barbecues are what we do,” Majitov adds.

Making rent strikes work

An industrial striker does no work and so loses her pay, but rent strikers actually save money while they agitate, as astronomic rents stop crippling working people and start depreciating from the profits of housing companies. The more unbearable the financial burden on the renters, the keener the loss suddenly felt by the landlord, in an efficacious reversal of power dynamics.

Last year, UCL-CTR organized students from UCL and SOAS in a successful strike, securing £400,000 compensation after the university conceded it had left students in unlivable conditions among cockroaches, rats and incessant building works. London’s first genuine rent strike for 40 years only involved 50 students, but each individual striker made a tangible, measurable impact on the university’s finances. Glasgow 1915 and UCL-SOAS 2015 are century-spanning testaments to the fact that a well-executed rent strike can be devastatingly effective.

Historically, successful mass rent strikes have benefited from a united left providing the infrastructure to exponentially increase the strike’s effect across multiple homes and into the industrial sphere, rather than leaving isolated strikers at the mercy of the bailiffs. A New York strike in 1907 relied on the backing of a strong, active Socialist Party, and the Glasgow strikes would not have succeeded without union support.

As noted above, the male-dominated superstructures traditionally capable of supporting mass direct action have diminished in size and power. If they want to achieve this vital escalation, 21^st century rent strikers must look to alternative, grassroots networks of activists.

Alternate support networks

Most successful rent strikes have been led by women. The distinction between rent strikes and industrial strikes should not be collapsed into a crude dichotomy between the male public sphere and the female domestic sphere. In 1907, 16-year-old Pauline Newman led strikes which secured rent reductions for 2000 New York families. She worked till 9pm in a textile factory before campaigning all night in the slums of Manhattan. Working-class women have always worked formally in the marketplace, as well as informally (and unpaid) in the home.

But Newman, the “East Side Joan of Arc”, was supported by housewives who spent the day going from tenement to tenement urging other families to join the strike. Working-class shop-floor networks intermeshed with female-dominated domestic networks. The Glasgow rent strike was sparked by landlords seeking to cow women into submission while their husbands were away fighting in the war. Again, Mary Barbour and her army rapidly spread information through the slums whenever the factor descended, militating via a social infrastructure which their landlords grossly underestimated.

Half of all British housing benefit recipients are single women. The average female flat-sharer in London earns £4236 less than her male counterpart, and twice as many women as men spend over half their salary on rent. Women have a disproportionate stake in the housing crisis, and male politicians continue to underestimate their ability to organize and resist. Though not a rent strike per se, the success of the Focus E15 mothers in resisting eviction attempts by Newham Council illustrates the continued power of localized, female, working-class support networks.

Interlocking working-class communities and communities of color have proven similarly capable of disseminating information and resistance. Rent strikers in 1930s Peckham relied on a rolling guard of unemployed laborers to defend their homes while successfully agitating for an improvement in living conditions. Majitov repeatedly emphasizes the importance of working-class solidarity in Midtown: “We don’t build apps, we don’t code. We drive buses and we deliver mail. And if this working-class community of color hadn’t stood together we would have been out a long time ago. ”

African-American Jean King (another woman) secured rent controls in St Louis after a year-long strike in 1969, while Majitov proudly notes that Save Midtown has the support of civil rights luminary Andrew Young, who successfully organized a rent strike alongside Martin Luther King in 1960s Chicago. Just like in Glasgow in 1907, Save Midtown have appointed tenant organizers with responsibility for contacting strikers across the development, and they are now reaching out to other African-American communities being abused by Mercy to launch a nationwide class action against the housing company.

The university bubble

A rent strike is a very different proposition for students, who are typically more privileged than the general population — a state of affairs maintained by the inaccessible rent conditions UCL-CTR are striking against. Many students have family homes to return to, and this can be leveraged against universities.

David Dahlborn explains: “When nothing had happened by the end of summer 2015, the international students who were on strike said ‘well, fuck it, I’m going home’. The university realized they couldn’t really send bailiffs to Mexico.” UCL capitulated soon after. Again, rent strikes reverse a power dynamic familiar to anyone who has tried to secure the return of a deposit from a suddenly evanescent landlord.

Students can also leverage the disjuncture between the public face of the academic university and its profit-making operations. “They say they’re concerned with education,” says UCL striker Aleksandra Tomaszewska. “But they’ve cut funding and bursaries while raising rent and tuition fees.”

Where housing companies are not hugely concerned with positive public relations, university authorities are at pains to emphasize that they provide a caring, nurturing environment. It would be a PR disaster for UCL to forcibly evict white, well-spoken, middle-class students. As with much student activism, student rent strikers can trade on their privilege to enjoy a much greater degree of security than their counterparts in council housing.

Universities constitute a ready-made network for the expansion of a strike. A successful rent strike at Sussex University in 1972-3 rapidly spread to 23 other universities. UCL-CTR is sharing advice and materials with student activists from SOAS, Imperial and Goldsmiths, as they seek to expand the current rent strike across the capital.

“Anyone could do it,” says Dahlborn, who repeatedly emphasizes the lateral organization of UCL-CTR. “Everybody on the strike is a potential organizer.” Students have more free time than workers; they have access to condensed bodies of left-leaning tenants paying vastly excessive rent; and they are keyed in to networks of information exchange between these bodies.

Rent strikes for the 21^st century

Paradigms established by 20^th century rent strikers could be instructive for those on the radical left wrangling about their relationship with Momentum and Jeremy Corbyn’s Labour Party. Newman and Barbour instigated their strikes alone, but willingly worked alongside hierarchical, party-rooted structures to replicate these actions on a wider scale.

But as Dahlborn argues, a successful general rent strike must ultimately emerge from coordinated grassroots action, as multiple localized organizations “replicate and generalize” tactics that have worked well elsewhere. An emphasis on the dispersal of power underpins much recent left-wing strategizing, and rent strikes can operate particularly effectively through decentralized, lateral organization.

“Together we are powerful, and united we can defeat the market,” Dahlborn says. The unity he describes is not monolithic but dispersed, varied and multiple. Strikes should be generated through grassroots networks, not mandated by top-down frameworks.

Networks of university activists provide one such structure. London’s Radical Housing Network, which unites housing co-ops, community action groups and union representatives, is another. (This organization could also facilitate liaison between university students and working-class activists).

Roger Hallam’s concept of “Conditional Commitment” involves assuring potential strikers that a strike will only go ahead once a certain number of other tenants have committed to the action. Successfully implemented by UCL-CTRE, this system of collective responsibility would function well in enabling dispersed networks of rent strikers to operate in unison.

Industrial strikes expose the gulf between the evaluated worth of employees’ labor and the evaluated worth of the products they manufacture. The fact that a rent strike is even tenable as a concept illustrates the fact that tenants, like workers, are treated as profit-making organs.

Historically, the establishment has therefore reacted ferociously to rent strikes, which expose the cruelty of market logic. A general rent strike called by a hypothetical national tenants’ union would likely meet with overwhelming opposition. But it would be much more difficult for the establishment to defeat a network of localized, coordinated strikes breaking out on university campuses and council estates across the country.

Prison Town Selling Its Jails to Grow Cannabis to Save their Economy — And It’s Working

Posted on February 25, 2016 by Reid Mukai

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By Justin Gardner

Source: Activist Post

A tiny California desert town is making a drastic change to reverse its downward spiral and embrace an enlightened future. For 24 years, Adelanto tried unsuccessfully to sustain its economy through prisons, but now it will be hosting a very different kind of business—cannabis cultivation.

The town became only the second city in California to permit commercial cultivation of medical cannabis, after a year of heated debate in the City Council. The persistence of John “Bug” Woodard, Jr. paid off in a 4-1 vote on Nov. 23 to allow cultivation.

“I had nothing to lose,” said Woodard. “The city could not get in any worse shape than it was. It was broke.”

Brooke Edwards Staggs of The Orange County Register describes Adelanto’s declining prison economy and the land rush that is now taking place after their decision to go to pot.

Its first prison was built in 1991, as the city braced itself for the closure of nearby George Air Force Base.

That didn’t stop Adelanto’s long slide into high unemployment and depressed property values. More than a third of the city’s nearly 33,000 residents now live below the poverty line. So it kept welcoming more prisons, banking on the promise of jobs and steady revenue in the form of an annual bed tax.

The town sold one of its four prisons to a private firm in 2010 for $28 million, and that cash is about to run out. Solar energy developers also had an interest in Adelanto, but only four projects have been constructed, producing a handful of jobs.

Now, a new kind of developer is flocking to the town.

Ky-Mani Marley, one of Bob Marley’s sons, has already signed on to license a strain of cannabis that will be grown there, according to Freddy Sayegh, the attorney on the project. Tommy Chong has also shown interest. So has B-Real of Cypress Hill fame, plus other high-profile musicians and professional athletes whose names are being kept under wraps.

One commercial real estate firm says they went from one call a week to five calls a day about purchasing land in Adelanto. Real estate prices have skyrocketed as “investors, cultivators, doctors, architects and record executives” fly across the country to see about getting in on the budding industry.

Twenty-seven companies have been permitted to set up grow operations in Adelanto, with two more pending. The first crop is expected to be produced by summer, and when it reaches full capacity, the town will be producing about 50,000 pounds of cannabis six times a year for the medical industry.

Since California approved medical cannabis use in 1996, it has finally gotten around to creating a licensing program for cannabis businesses under the Medical Marijuana Regulations and Safety Act. The state is expected to legalize recreational use this November, which will greatly increase demand for legitimate operations.

The trend of cities allowing commercial-scale cannabis cultivation is a relief for those concerned about the environmental impact of illegal grow operations. Last year we reported how many growers are carelessly polluting aquatic ecosystems with rat poison and other toxic chemicals, while drying up already stressed streams.

As more towns and cities in California permit large-scale cannabis cultivation, demand will shift to these responsible growers, which should begin to reduce the pressure on the state’s fragile aquatic ecosystems.

Adelanto, which means “progress” in Spanish, will indeed prove to be a model of progress as it transitions from a depressing economy of prisons to one that actually helps human and environmental health.

“Tomorrow, they’ll be on the correct side of history and be recognized as a city that actually embraced safety and embraced something that heals people,” said Randall Longwith, an attorney representing investors.

Not only will cannabis businesses be producing exclusive strains for distribution, but Adelanto will also serve as a hub of medical research for ailments such as pediatric epilepsy, brain tumors, and post-traumatic stress disorder. Cannabis is showing great promise in all of these areas.

As a bonus, the medical cannabis research company Ecologies Laboratories will be pushing out a merchant of death. General Atomics Aeronautical Systems, which makes the Predator drone, will have to give up its storage facility in Adelanto as the landlord has decided to lease it to Ecologies Laboratories instead.

Adelanto joins another California city, Desert Hot Springs, to become a new kind of western pioneer. It will save its economy by making millions in tax revenue and securing hundreds of jobs, and, more importantly, is embracing a future where cannabis will prove to be a medical wonder.

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