To read the public and business press, it appears the US economy is about to accelerate, the Federal Reserve will soon raise interest rates, unemployment is at pre-recession lows, wages are about to rise, housing is recovering. Meanwhile, Europe is growing again now that the Greek crisis is resolved; China has stabilized its stock marke;, and the rest of the world is on a recovery path. But this public spin to the current US and global economic scene does not conform to reality. Jack Rasmus takes listeners on an ‘economic tour’ of the realities in the US and global real economy, where the US continues on a sub-par ‘stop go’ recovery, where China is really growing at 4-5% GDP, not the announced 7%, where China’s stock market collapse, begun in June, has only paused before another turn lower, where Europe QE is failing to generate a sustainable recovery and the ‘Greek Crisis’ is far from over, where Japan’s real economy has stalled (again for the fifth time since 2008), and where emerging markets from Indonesia to Brazil to Turkey are slowing and slipping into recessions. The global oil deflation is entering another decline, global commodities prices and sales are falling further, currency instability is rising, and money capital is flowing back to the US from everywhere, raising rates in the US and slowing economies elsewhere as the US dollar rises. (Next week: ‘Is the Global Economy Heading for Another Financial Crisis?
China’s two main stock markets, the Shanghai and the Shenzhen Exchanges, plunged more than 30% in recent weeks from their previous record highs of June 12. The Shanghai dropped 30%, and the tech-stock heavy Shenzhen by 37%. That’s the steepest stock decline in China since 1992. The markets briefly stabilized on July 9. But the question remains, will they continue their free fall again, as they had after several previous brief stabilization efforts since June 12? And what does it mean for China if they do? Or for the global economy in turn, given that China’s economy is at least as large as the USA’s and, by some measures, now larger? If the collapse resumes, does it signal the start of another global financial crisis? If the China stock market rout continues, it may likely spillover to China’s real economy and slow it still more than it has already. The contagion could spread to other financial markets in China—housing, local government debt, bonds and loans for industrial companies, all of which have recently continued to struggle with excess debt, speculation, and bubbles. The loss of $4 trillion in wealth so far will undoubtedly have an effect on consumer spending that
On opposite ends of the world, two major financial instability events continue to emerge: China’s stock markets collapsing and Greece’s possible exit from the Eurozone. Both promise to produce significant contagion effects in the global economy, now already slowing. In the first half of the show, Jack reviews the latest Greek offer to the Troika delivered this past Thursday and compares it to prior Troika and Greek positions. The conclusion is Greece appears to have caved in to Troika concession demands in exchange for a ‘smoke and mirror’ restructuring of the Greek debt. If accepted, Jack argues, it will mean the Syriza government will eventually self-destruct—which has been the objective of the Troika from the very beginning. Traditional Euro social democracy (Greece’s proposals) is no longer acceptable to banker-investor governed Neoliberal Europe. Jack then takes a detailed look at the causes of the current freefall in China’s main stock markets and the possible consequences for China and the global economy. What’s behind the 150% rise in one year and now the collapse. Jack describes China’s latest emergency extreme measures being introduced to stem the fall, by injecting more de facto ‘QE’ money into the markets to stimulate stock buying again and introducing other extreme measures to stop stock selling. Likely potential contagion effects on China’s other markets (housing, local government debt, industrial debt) and its real economy are considered. Will China growth now slow further? What are consequences for the global financial system as contagion continues to spill over to other financial asset markets globally—stocks, bonds, commodities, currencies? Even more than Greece and the Eurozone, China’s markets collapse signal the global economy has moved one step further to another financial crisis event.
Jack Rasmus explains the northern Europe Neoliberal origins of the current Greek Debt crisis, and why the Troika cannot and will not accept Greece’s proposals which would upset the Euro-wide Neoliberal consensus. Greece’s proposals represent a return to traditional, pre-Neoliberal, European social democracy—which has been replaced with a new Neoliberal regime Europe-wide since 2000 with the creation of the Euro currency. Jack explains if the Troika agreed to Greece’s quite reasonable proposals, it would open a ‘pandora’s box’ that would undermine the Euro neoliberal regime and the Euro elites’ strategy for economic growth based on exports stimulus via QE plus labor cost reduction. Ironically, allowing a Greek exit may destabilize Greece and the Eurozone in the longer run as well. Jack reviews the growing centrifugal forces within Europe that are building toward an eventual Europe breakup down the road: the inability to engineer a sustained economic recovery, the long run contagion effects from the Greek debt crisis, the Ukraine and sanctions against Russia, the massive immigration inflows into Europe from failed states in the middle east and Africa caused by US policies that Europe has joined as well, the rise of parties on the left and right in Europe advocating
The weekend of June 27-28 marks the likely last comprehensive negotiating session between the Troika and the Greek government before the current extension of the debt agreement between Greece and the Troika formally expires on June 30, 2015. As final negotiations come down to the wire, the class nature of the bargaining positions of the two parties is becoming increasingly clear. The Troika clearly wants Greek workers, pensioners, and small businesses to pay for any further debt deal, while the Syriza government desperately tries to have corporations and wealthy Greeks to pay more, and the Troika to absorb more of the costs of any restructuring of the debt. Greece wants a solution that allows their economy to ‘grow out of’ the debt, while the Troika wants a continuation of spending cuts and tax hikes on workers, retirees and others—some now even more draconian than in the past—as the solution. Put another way, the Troika wants more austerity and economic stagnation, while Greece wants to lighten the burden of austerity in order to get some growth going. Greece’s Latest Concessions During the past week, bargaining has intensified between the parties. Earlier last week Greece offered new proposals
Jack Rasmus reports on the final positions of the Greek government and the Troika (IMF, ECB, EC) as they enter negotiations this weekend, June 27-28, before the expiration of the current debt payments on June 30 and a possible default on the debt. Jack reviews the most recent positions of the Greeks, provided last week in a comprehensive 11page document, which was rejected by the Troika on June 24 in toto, the failed negotiations at the highest levels on June 25-26, and the two sides’ demands as last minute negotiations occur June 27-28. The highly class nature of the negotiations are noted—with pensions (deferred wages), sales taxation (impacting workers more), Troika opposition to tax the rich, and Troika demand for full privatizations. The Troika’s emerging ‘Plan B’ is described (i.e. push Greece to default and maneuver a regime change) vs. the missing Greek ‘Plan B’ (establish a parallel currency to the Euro) are contrasted. The five major negotiating errors that the Greek government has committed since March are described. The most likely scenario to the final deal on June 30 is outlined—based on extending the negotiations for months more, Troika paying itself for debt with funds it has been denying Greece, in exchange for more concessions still from Greece.’ (Listeners are encouraged to listen to the Alternative Visions shows of the two preceding weeks as background to the current show.
Dr. Jack Rasmus provides an update on Greek debt negotiations since last week’s Alternative Visions show and discussion on the origins of the Greek debt. Updates include Troika scenarios outlined at its June 12 meeting in Bratislava, the IMF walkout after, the failed meetings that occurred in Brussels over the weekend of June 13-14, and Greece’s proposals of June 15 rejected again by the Troika. Also discussed are the sabotage of the Greek government negotiators by their own Greek Central Bank, which on June 17 publicly declared Greece should sign the Troika’s latest package; Greek prime minister, Tsipras’, warmly welcomed visit to Russia on the same day; and the failed meeting of June 18 of Euro finance ministers in Luxemburg at which it was expected Greece would concede to the Troika’s position but didn’t. Jack notes the growing statements by German and IMF representatives that a managed default and Greek exit is preferable to continuing Greece’s unresolvable debt crisis. Were Greece to agree to the Troika’s position, and generate a $2-$3 billion a year surplus (by cutting spending and raising sales taxes) that it would take Greece 150 years to pay off the Troika debt. Greece cannot pay and cannot ‘grow out of’ the crisis, Rasmus argues. Rumors continue to grow that Greece may rearrange its cabinet, replacing hardliners with more amenable cabinet members should it agree to more Troika cuts in exchange for some debt restructuring. The political and economic risks for both sides of continuing negotiations and of default are noted. Default is quite possible, Rasmus notes, but the most likely 60-40 scenario is some kind of more concessions by Greece for some kind of debt restructuring over the next 90 days, as the current extension is extended yet again.
Jack Rasmus discusses the latest events of the past week in the Greek debt negotiations, with the IMF ‘walking out’ of negotiations and both sides, the Troika and Greece appearing to issue ultimatums as to what is unacceptable. Three choices remain as negotiations come down to a June 30 deadline: either Greece defaults (fails to make payments due on June 30 to the IMF when the current extension of the debt agreement expires; the Troika (IMF, ECB, European Commission (finance ministers) continue to insist on a ‘take it or leave it’ position, or both parties—Greece and Troika—agree to extend both the agreement and debt payments due for another 30-60 days and continue negotiating. Jack explains how the latter is most likely, but may not happen nonetheless. Consequences of a default for Greece, the Eurozone markets, and the global economy and banking system are considered. In the second half of the show, Jack explains in detail how Greek debt rose to its current $300 billion, unsustainable levels. The explanation is to be found in the US ‘twin deficits’ (trade and budget) policies introduced successfully by US capitalists and government in the early 1980s to resurrect the US economy and solidify its global hegemony once again after the crises of the 1970s. Twin deficits were a key element of US neoliberal policies that have worked since 1980 to ensure US dominance. With the creation of the Euro in 1999, northern European bankers and governments attempted to create a similar arrangement within the Eurozone. It worked until the 2008-09 crash, the second European recession of 2012, and the chronic slow growth ever since in Europe. Greek (and Euro periphery) debt rose ever higher with each event, to its unsustainable levels today. Why the Euro ‘twin deficits’ neoliberal strategy failed.
Jack Rasmus updates last week’s show on the decline in US GDP with new data for trade, productivity and jobs, and reviews events of the global economy in Europe, China and elsewhere including the Euro and global bond market sell off of the past week. A preview of his new book, ‘Systemic Fragility in the Global Economy’ due later this summer, is offered, describing the 9 key trends in the global economy today that represent the ‘dead cat bounce’ recovery: slowing real investment, drift toward deflation, explosion of central bank liquidity and credit, rising global corporate debt, the shift to speculative financial asset investing, the restructuring of financial and labor markets in the 21st century, and why central bank monetary policy and government fiscal policies are failing to generate a sustained real recovery of the global economy. How it is all resulting in rising global income inequality in turn.
This program is a replay from a previous week. Alternative Visions show next week, June 13, will discuss the latest events of the Greek Debt Crisis and a potential Greek default impact on Europe and global economic instability
Déjà vu All Over Again
So now the cycle has begun again. As the great American philosopher, Yogi Berra, once said: “It’s déjà vu all over again.” Among union leaders, leaders of various ethnic organizations, church leaders, liberal academics, and all the rest that consider themselves “progressives,” one today hears the same refrain: Elizabeth Warren, Senator from Massachusetts, is our preferred candidate. If Hillary implodes before November 2016 national elections, we have Elizabeth Warren in the wings. Hillary may be the only one who can win against a Republican. But Elizabeth will keep Hillary honest and ensure she, Hillary, adopts appropriate progressive positions during the 18 month campaign that lies ahead. Push the Democratic Party to the left and Hillary will have to follow.
And this year we are especially fortunate, progressives add. Now we have an even more progressive candidate, left of Warren, waiting to step up as well—the Senator from Vermont, Bernie Sanders, who also announced his candidacy for president in recent weeks. If Warren pushes the party left, then Sanders, just outside the party (actually always with one foot in it) can pull her still further left. And who knows, if Hillary falters, Sanders might actually push Warren to finally enter the race, providing her ‘left cover’ for her candidacy, as they say.