Article 43
Friday, April 19, 2019
The Next Recession Part 27
As US Economy Weakens, Economists Struggle to Predict Next Recession
By Dean Baker
Truthout
April 1, 2019
Many of the people who completely missed the worst recession since the Great Depression are trying to get out front and tell us about the next one on the way. The big item glowing in their crystal ball is an inversion of the yield curve. There has been an inversion of the yield curve before nearly every prior recession and we have never had an inversion of the yield curve without seeing a recession in the next two years.
Okay, if you have no idea what an inversion of the yield curve means, it probably means youre a normal person with better things to do with your time. But for economists, and especially those who monitor financial markets closely, this can be a big deal.
An inverted yield curve refers to the relationship between shorter-and longer-term interest rates. Typically, the longer-term interest rate - say, the interest rate you would get on a 30-year bond is higher than what you would get from lending short-term, like buying a three-month U.S. Treasury bill.
The logic is that if you are locking up your money for a longer period of time, you have to be compensated with a higher interest rate. Therefore, it is generally true that as you get to longer durations - say, a one year bond compared to three-month bond - the interest rate rises. This relationship between interest rates and the duration of the loan is what is known as the “yield curve.”
We get an inverted yield curve when this pattern of higher interest rates associated with longer-term lending does not hold, as is now the case. For example, on March 27, the interest rate on a three-month Treasury bill was 2.43 percent. The interest rate on a 10-year Treasury bond was just 2.38 percent, 0.05 percentage points lower. This means we have an inverted yield curve.
While this inversion has historically been associated with a recession in the not too distant future, this is not quite a curse of an inverted yield curve story. Most recessions are brought on by the Federal Reserve Board raising the overnight federal funds rate (a very short-term interest rate), which is directly under its control. The Fed does this to slow the economy, ostensibly because it wants to keep the inflation rate from rising.
The higher short-term rate tends to also raise long-term interest rates, like car loans and mortgages, which are the rates that matter more for the economy. However, longer-term rates tend not to rise as much as the short-term rate. In a more typical economy, we might expect a 3.0 percentage point rise in the federal funds rate to be associated with a 1.0-2.0 percentage point rise in the 10-year Treasury bond rate.
We get an inversion in this story when the Fed goes too far. It keeps raising the short-term rate, but investors in longer-term debt think that they see an end in sight to rate hikes and a reversal on the way. If the short-term rate is going to be falling to 2.0 percent or even lower in future months, then investors would welcome the possibility of locking in an interest rate like today’s 2.38 percent on 10-year bonds, even if it means foregoing a slighter higher short-term rate at the moment.
That’s pretty much the story we have today. Since December 2015, the Fed has raised the federal funds rate from essentially 0 to 2.5 percent. With little evidence of inflation and some signs of a weakening economy, many investors are betting that the Fed has stopped hiking rates and will soon be lowering them. This hardly means there will necessarily be a recession.
It is also worth noting that interest rates in the US are notably higher than in other countries, which do face a recession or near recession conditions. While the US 10-year Treasury bond pays 2.38 percent interest, a 10-year French bond pays just 0.31 percent. In the Netherlands, the interest rate is 0.13 percent, and in Germany, you have to pay the government 0.07 percent annually to lend them money.
The extraordinarily low long-term interest rates in other countries puts downward pressure on interest rates here, which is another factor in our inverted yield curve. The weakness of economies elsewhere does mean trade is likely to be a drag on growth in the immediate future, but it does not mean a recession.
To sum up the general picture, the U.S. economy is definitely weakening. The tax cut did provide a boost to growth in 2018, as shareholders spent much of the money they were given from the corporate tax cut. But there will be no additional boost in 2019. There was no investment boom to give us a big push going forward. Also, the rise in mortgage interest rates last year, following the Fed rate hikes, slowed housing.
As noted, trade is a drag on growth. With Republicans again concerned about deficits, since they got their tax cuts, we can probably expect some cuts in government spending that will also dampen growth.
However, with wages growing at a respectable pace, and job growth remaining healthy, we should see enough consumption demand to keep the economy moving forward. That means slower growth, but no recession.
People should not spend time worrying about the curse of the inverted yield curve, at least not unless something else bad happens to the economy.
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Tuesday, April 09, 2019
Solutions to Save Our Nation
If You Were President, What Would You Do?
By Philip A Farruggio
Global Research
April 7, 2019
I actually wrote an earlier text on this issue in 2012 when Obama was running for re-election. Sadly, ALL of the ISSUES AND IDEAS below were those that neither of the Two Party/One Party system would dare to agree with.
Now we are in the Age of Trump and the pirates have really been let loose on us. All the Democrats seem to focus on is Russia Russia Russia. If I hear the phrase “The Mueller Report” anymore I think I will be committed! The skinny of all this is that the Democrats focus on the absurdities of Trump’s tweets and misinformation, along with a ridiculous border wall.
Meanwhile, while the Dow breaks records and “reported unemployment figures are low,” few from either party seem to grasp the “Why of this.” Well, the late and great Naval Air Colonel Bob Bowman, who had his epiphany after serving in Vietnam, explained it all to me many years ago. I asked him about Wall Street and the Dow, and about our labor figures. “Philip,” he said, ”It’s all very simple to understand. Unemployment figures will be lower when either many of the low wage earners will have to get two and even three part time jobs to survive, or have given up even looking for work. As far as the Dow index, when wages are going up the Dow will be low. When wages are going or staying down the Dow will go up. Period!”
I dont intend to list countless measures that, as President, I would take. No, rather, in this world of one minute sound bites and KISS (Keep it Simple Stupid) I have a streamlined platform that covers the really pertinent and key issues of our day:
Cut the military spending drastically to save our states, their cities and our prestige as a nation. The 25% Solution Movement has a simple and novel approach to this: Congress cuts military spending 25% by an “Up and Down” vote, since this spending is considered Discretionary As President I will use my bully pulpit to go directly to the American public, urging everyone to A) get out and continually demonstrate for this, and B) let their congressional representatives know that they will not vote for anyone who refuses to support this! Period!
Use the added revenues from the above action ($ 170 billion a year) to send to all 50 states to help with their budget deficits. This would then allow the states to send money to the cities for the same purpose. No need to lay off police, firefighters, teachers etc or to close libraries and schools. You get my drift?
End the occupations of Iraq & Afghanistan and send the troops home ASAP! This would save us over $ 100 billion a year and stop the killing of our troops and the innocent civilians that they kill. It would also allow the UN, along with the Middle Eastern nations, to help stabilize those two countries.
Flat Surtax of 50% on all personal income over and above one million dollars per year. Let’s leave the federal tax rates as is and begin taxing the millionaires and mega millionaires. If we are truly a nation entrenched in the Judeo-Christian traditions and precepts, are we not supposed to be Our brother’s keeper? Cannot a person who earns millions in income, whether it is from salary, bonus, interest, commissions, or inheritance, afford to live quite well on 50% of those millions? Did you know that 50% of working Americans earn less than $ 27,000 a year? How can a single mother or father raise a child or two on that meager amount? Do the math and see how taking half from a very wealthy person is perhaps the most spiritual thing we can do as a nation.
Return the corporate tax rates to what they were in our recent past. Honor small business by instituting payroll tax forgiveness for up to the first $ 20,000 of wages, for both the employee and employer. This would return close to $ 1500 a year to each worker, tax free. The small business owner would have saved up to $ 1500 for each employee. I would cap this plan at a maximum of 100 employees., though ALL employees anywhere still get their forgiveness. This plan would discourage őoff the books hiring and give small businesses more capital to stay competitive, if they choose.
Jumpstart a movement to get private money out of electoral politics - federal, state and local. Not an easy thing to accomplish, due to the 1976 Supreme Court ruling of Buckley vs. Valeo. That ruling stated that “Money is free speech.” How do we get around such an unfair interpretation without going insane and waiting 20 years for constitutional amendments? Well, as President, I would challenge you, the voters, who elect the moneyed interests time and time again. I would urge that you only support candidates who agree to limit acceptance of campaign donations up to $ 100 per person. On top of that, we must not support any candidate who accepts PAC money at all. Period!
I would push for Congress to open up Medicare for any American who wishes to buy in. It should be 100% government run with no room for private insurers. By some of the aforementioned actions, there would be plenty of money to jumpstart it etc. The buy in would still cost less than currently under our Medicare system , which relies on private insurers too much. Having such a system would be easier to manage, with one claim form for all.
Why not have our federal government jumpstart community nonprofit mortgage banks? Imagine if your city, town or county opened, with federal loan guarantees, a nonprofit mortgage bank, charging only overhead costs? Translated: a current mortgage of let us say 5% from a for profit bank would now be perhaps 2% from a nonprofit community one. More home ownership, fewer renters and economic stimulus for many such peripheral industries.
Windfall profits tax on Big Oil and Big Pharma. How can it be that the prices at the pumps and on medicines spiral upwards while the majority of working stiffs experience depression, both financially and psychologically? We would use the added revenue to create more solar energy use and wind farms. Portugal is getting more dependent upon wind for energy use. Why cant we? As far as medicines, letђs use the revenue increases from a windfall tax on Big Pharma to jumpstart an alternative care movement. We need more Americans to be able to get acupuncture and chiropractic treatment, massage therapy, psychological counseling to name a few such alternatives to established Western Medicine. Lets be blunt: For too long our nation leads the world in the Ғdrug and cut mindset of medicine.
I could go on and on. For now, this is my platform. If you agree with even 2/3 of it, then voice your support. You know and I know that I cannot win election, but - the word will get out that we have viable options to what this current Two Party / One Party has been offering.
Philip A Farruggio is a son and grandson of Brooklyn, NYC longshoremen. He has been a free lance columnist since 2001, with over 400 of his work posted on sites like Global Research, Greanville Post, Off Guardian, Consortium News, Information Clearing House, Nation of Change, World News Trust, Op Ed News, Dissident Voice, Activist Post, Sleuth Journal, Truthout and many others. His blog can be read in full on World News Trust, whereupon he writes a great deal on the need to cut military spending drastically and send the savings back to save our cities. Philip has a internet interview show, “It’s the Empire Stupid” with producer Chuck Gregory
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Want to Stimulate the Economy?
Lower the Retirement Age to 55 Now!
By Thom Hartmann
May 11, 2011
One of the most powerful forms of stimulus we could apply to our economy right now would be to lower the current Social Security retirement age from the current 65-67 to 55, and increase the benefits back to where they were in inflation-adjusted 1960s dollars by raising them between 10 to 20 percent (so people could actually live, albeit modestly, on Social Security).
The right-wing reaction to this, of course, will be to say that with fewer people working and more people drawing benefits, it would bankrupt Social Security and destroy the economy. But history shows the exact reverse.
Instead, it would eliminate the problem of unemployment in the United States. All those Boomers retiring would make room in the labor market for all the recent high-school and college graduates who are now finding it so hard to find a job.
If enough Boomers left the job market, it would even flip the current dynamic of too-many-people-chasing-too-few-jobs upside down, and create a tight labor markets. Tight labor markets drive up wages.
And as wages go up, tax revenues—which are paying for Social Security (among other things)—would increase.
Additionally, these new-into-the-workforce people can then pay off student loans, buy new houses and cars, and otherwise drive the economy from the bottom up. Which will further increase tax revenues further strengthening the Social Security system.
To further tighten the job market and drive up wages (and tax revenues), modify the Fair Labor Standards Act of 1938—which tightened the labor market and reduced unemployment by establishing the 40-hour work week - to include all hours worked by a person. We could also, like in France, drop the 40-hour maximum-workweek threshold to 35 hours (used by the Mitterrand government to successfully lower unemployment and stimulate the French economy). A final step would be to emulate the rest of the developed world and require by law that every worker get at least two to four weeks a year of paid vacation—further tightening the labor market.
In Uganda, Joseph Okwakoi gets it. He’s the president of the National Youth Council in that nation, a group that has considerable political power (and an affiliated Member of Parliament, the Central Youth Party’s Joseph Kasozi).
Earlier this month, Okwakoi called on Parliament and President Museveni to lower the age of retirement for government workers (the country’s largest employer) from the current 60 years of age to 55. This single act would instantly create about 15,000 job openings in the country, which could be filled by currently unemployed young people.
President Museveni replied that he’d consider it seriously, pointing out that, “The retirement age was actually 55 when we came but because of manpower shortage we put it at 60.” Now that the manpower shortage has eased, wages are falling, and unemployment is rising, he noted, “We shall study it.”
What Joseph Okwakoi understands is that there is a marketplace for labor. When the supply of labor exceeds demand, the price of labor ("wages") falls. On the other hand, when the demand for labor is at or greater than the supply of labor, the price of labor - wages - increases.
This is the main reason why the labor movements of the 18th and 19th centuries fought so hard against child labor; they knew that if children were removed from the labor marketplace, then the supply of labor (the number of people available to work) would decrease and the price of labor (wages) would increase. And, sure enough, that’s exactly what happened - and it began the creation of a blue-collar middle class.
It’s also why the labor movement pushed for an 8-hour day and a 40-hour maximum workweek. By reducing the amount of labor available from each worker from the average 60 hours a week or so people were working before 1938, the labor market tightened up, increasing the number of people who could be employed and raising wages.
Of course, this is the exact opposite of American labor policy ever since the Reagan/Bush/Clinton/Bush era. Reagan drove down wages by busting unions (which tighten a labor marketplace); declared an amnesty for millions of then-illegal immigrant workers to increase the supply of labor and depress wages (particularly whacking the carpenters and other construction trades unions); and began the process (completed in a big way by Bill Clinton with NAFTA and GATT/WTO) of dismantling tariffs, taxes, and laws that made it expensive or illegal to export American jobs.
Reagan also put into the chairmanship of the Fed Alan Greenspan, who openly declared that his most important job as chairman of the Fed was to prevent “wage inflation”—a term which he exclusively applied to working-class people. Greenspan is still preaching that now-discredited and anti-American philosophy he learned from Ayn Rand, in fact.
Having already largely wiped out the ability of a blue-collar single-wage-earner family to have a middle class lifestyle over the past 30 years, Greenspan now wants to go after white-collar workers by eliminating limits on H1B visas for skilled workers ranging from computer programmers to physicians to scientists. The investor class would always be protected, in the Greenspan world, but the working class—regardless of skill level—should always be the working poor.
In September of 2007, in an interview on C-SPAN for Book TV, Greenspan said:
We pay the highest skilled labor wages in the world. If we would open up our borders to skilled labor far more than we do, we would attract a very substantial quantity of skilled labor which would suppress the wage levels of the skilled, because the skilled are essentially being subsidized by the government, meaning our competition is being kept outside the country.
It’s shocking that ideologues like Greenspan, Reagan, and Clinton believe this, but they do. And the only way to reverse the past 29 years of Reaganomics/Clintonomics is to tighten up the labor market again. While a great start would be to pull out of our insane trade treaties and begin again protecting American manufacturers, that will take a decade for the impact to be truly felt even if we were to go back to our 1980 tariff levels today.
But providing space for a good chunk of the 16 percent of the American workforce over 55 years old will immediately take us to nearly zero unemployment and dramatically stimulate the economy. Then we can begin to bring our manufacturing jobs back home from China and the other important steps (Medicare For All and Card-Check for unionization) to restore the strength and integrity our nation and national economy once had.
Thom Hartmann can be heard daily on his radio show 12pm-3pm ET. Visit Thom’s WEBSITE to stream live or find a station near you.
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Saturday, April 06, 2019
Bad Moon Rising Part 75 - Race To The Bottom 2
15 Years ago I WROTE ABOUT the fall of the Unites States, and rise of China, as we close down or move overseas more and more businesses, and ship more and more jobs to other countries, resulting in widespread unemployment and poverty of the disappearing of middle class America. We call it a RACE TO THE BOTTOM.
My opinions and fears haven’t changed over the years.
What does SURPRISE me though, is that our society hasn’t totally collapsed yet.
The folks at Anonymous sum it up below.
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Anonymous Message To Citizens of the United States of America II
By David Cohen
Anonymous
April 6, 2019
Greetings citizens of the United States of America.
This is a message to wake you up to the coming changes in the world economy.
The United States has enjoyed the position of top global super power for many generations, but soon that time is coming to an end. CHINA is quickly rising to dominance on the global stage, and they are projected to overtake the United States economically and culturally in the years to come.
The Chinese military has also been overlooked and underestimated by westerners as it continues to grow.
Last month, it was announced that the government of China set a defense budget growth target of 7.5 percent in 2019, which is slower than last year but still enough to build a military that rivals the United States.
According to research from the Stockholm International Peace Research Institute, China spends considerably more on defense than they reveal to the public. There is no doubt that the United States still spends more on the military than any other country, but with China’s massive population, they can get more bang for their buck.
CHINA is beginning to take over the United States in many other ways also, especially in terms of economics. Just last month it was announced that Apple, one of the largest corporations in the world, has more suppliers and manufacturers in China and Hong Kong than anywhere else in the world.
The total number of production sites located in mainland China increased by 26 from the previous year to 380, accounting for almost 50% of all sites engaged in Apple’s supply chain. The 200 suppliers together represent 98% of Apples fiscal year procurement of materials, manufacturing, and assembly, according to the Asia Review.
China has massive leverage over the rest of the world by producing so many of our products. The outsourcing of jobs also weakens the economies of other nations and funnels large sums of money into the Chinese economy. This relationship, in part, has contributed to the massive debt crisis experienced in the United States economy. In fact, China is the largest foreign holder of US debt in the world.
The U.S. debt to China is $1.13 trillion as of January 2019. The rest of the $22 trillion national debt is owned by either the American people or by the U.S. government itself, but out of all the nations on earth outside of the US, China is the largest holder. Japan comes second at $1.07 trillion, followed by Brazil at $305 billion. Ireland holds $270 billion, and the United Kingdom owns $272 billion. China is now becoming a major player on the global stage that is quickly beginning to rival the United States.
Now the United States government is embroiled in a trade war with the government of China, but time will show that China has far more leverage in this situation. China is also on the cutting edge culturally, with a population that is far more educated than that of the US, and an increasing percentage of global patents and inventions. This is because the government of the United States has dumbed their citizens down to make them easier to control, while China is created a well-oiled machine and economic powerhouse.
The population of the United States has become soft because they have mostly lived in comfort, and they have allowed their government to become corrupt, unaware of what has been happening in the outside world. If the citizens of the United States are going to do anything to protect themselves from the coming changes in global politics, they must educate themselves and learn to become more self-sufficient and independent. The United States is quickly SLIDING into the ranking of a third world country, and without drastic action, the lives of comfort that citizens of the country have known will be COMING TO AN END. The rising influence of China can not be stopped, however, it is not too late to save your own country from the corrupt politicians that have run it into the ground.
The time has come for us to unite, the time has come for us to stand up and fight!
We are Anonymous!
We are Legion!
We do not forgive!
We do not forget!
Expect us!
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“The American Dream Is Lost” - Ray Dalio Tells ‘60 Minutes’ Why American Capitalism Must Be Reformed
By Tyler Durden
Zerohedge
April 8, 2019
After giving $100 MILLION for Connecticut’s public schools and publishing a lengthy treatise entitled “Why And How Capitalism Needs To Be Reformed”, Bridgewater Associates founder Ray Dalio took his battle to encourage bipartisan though still-radical ‘reform’ of American capitalism to an even broader audience: that of CBS’s long-running television news magazine ‘60 Minutes’, where he invited the program’s journalists to interview him aboard his yacht near the Bahamas, and to the rarefied offices of Bridgewater, to hear about how the American system must either change, or die.
The interview included plenty of red meat for Dalio’s journalist guests, as the billionaire illustrated his point with bombastic quotes like the one below:
“I think the AMERICAN DREAM is LOST...for the most part we don’t even talk about it.”
But what’s not working?
“It’s not redistributing opportunity...there’s a growing wealth gap and a growing income gap.”
Dalio - who ‘60 Minutes’ claimed avoids extensive interviews despite his borderline pathological lust for publicity - reiterated many of the ‘solutions’ he proposed in his essay, included the notion that a ‘national emergency’ should be declared to deal with economic inequality.
“If I was president of the United States what I would do is recognize that this is a national emergency.”
Either that, or we risk allowing America’s longstanding Democratic institutions being thrown into upheaval, because the economic inequality will be resolved eventually. The question is whether the solution will involve practical reforms or a descent into authoritarianism.
“If you look at history, if you have two groups of people with very different economic conditions, and you have an economic down turn...YOU GET CONFLICT. If you look at the 1930s, you had 4 countries that were democracies that chose not to be democracies to bring order to the conflict.”
Channeling Warren Buffet, who pays very little in taxes due to the fact that most of his wealth is in stock, Dalio says ‘of course’ taxes should be raised on wealthy people like him. But the key is to take money raised by the government and use it “productively.” According to Dalio, the notion that tax cuts stimulate growth “doesn’t make any sense at all.”
But in response to all of the young people who believe socialism is the answer to America’s problems, Dalio would like them to know one thing: It definitely isn’t.
“Capitalism needs to be reformed...it doesn’t need to be abandoned. it needs to be reformed in order to work better. American capitalism isn’t sustainable.”
But what are the odds that the reforms of which Dalio speaks actually happen. If e had to assign probabilities, he said ‘60-40’ that the inequality issue will be dealt with ‘badly’ - implying either a violent revolution like he warned about in his essay, or the election of an authoritarian leader to “restore order”, as he put it.
Dalio, as CBS reminds us, bought his first stock when he was 12 with money he made as a golf caddie. However, the program’s description of Bridgewater’s army of analysts was slightly antiquated, depicting them as the drivers of the firm’s investment decisions (rather than a marketing tool. At Bridgewater, it’s well known that the machines make most of the investment decisions.) More humorously, ‘60 Minutes’ sat in on one of Bridgewater’s staff meetings, and gently reported that “there’s a bit of a Big Brother vibe”...and humorously pointed out that a camera visible in one of the company’s meetings “wasn’t ours, it’s theirs").
Though one fact that’s not up for debate: Bridgewater has made money for its clients during 25 of the last 28 years. And last year, when the S&P 500 sank 4.5%, Bridgewater posted a double-digit gain.
The interview closes with an apt metaphor for differentiating Dalio’s approach with tech billionaires like Jeff Bezos: Traveling near the ocean floor in a machine built for marine biologists to explore the Ocean floor, Dalio says he finds deep-sea exploration to be far more important than exploring space. “If I come down here and see the coral reefs are dying...it doesn’t take a genius to know that the something is out of balance.”
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