America’s “Houdini Recovery” under IMF-Type Austerity – by Stephen Lendman
It’s what economist David Rosenberg calls recovery given plenty of supportive evidence, including:
— over five million homeowners behind on their mortgage payments;
— at record levels, foreclosures are alarmingly high; moreover, “the foreclosure pipeline is enormous;”
— “housing, the quintessential leading indicator,” turning lower again in starts, sales and prices;
— instead of a normal 5 – 6 months home supply, the market has a 21 month overhang, including shadow inventory from the foreclosure pipeline;
— mortgage applications for new home purchases down 13.9% on top of last year’s 29.4%;
— over six million Americans unemployed for at least six months, “a record 40% of the ranks of the joblessness;”
— over 11 million full-time jobs lost since late 2007, and well over four and a half million since Obama took office, despite pledging to create them;
— millions of jobs lost despite massive economic stimulus, and when it slows, watch out;
— a federal deficit over 10% of GDP, twice the 1930s ratio;
–private capital growing at its slowest rate in nearly two decades;
— 30% of manufacturing capacity idle;
— 19 million vacant residential housing units – about 15% of the total;
— one in six Americans unemployed or underemployed;
— the adult male employment-to-population ratio at a record low 67% compared to 73% when the recession began;
— at this stage of the economic cycle (two and a half years after Fed easing began), employment typically expands at least 150,000 per month; instead, it’s still contracting, the level is 8.4 million lower than before the recession began, and the economy is 12 million jobs shy of full employment, a gap that will take years of sustainable growth to close;
— commercial real estate values down 30% in the past year and falling;
— the average American worker $100,000 poorer (including loss of home equity), even with the stock market rally;
— bank credit contracting at an unprecedented 15% annual rate this year “as lenders sit on a record $1.3 trillion in cash;”
— collapsed commercial and industrial loans;
— Falling Gross Domestic Income, approaching an annualized minus 4% compared to the 1982 recessionary low of plus 4% and 2001 low of plus 2%; “the discrepancy between the income and spending accounts has never been so wide as” today; and
— unit labor costs down 4.7% in the past year, meaning workers earn and spend less.
Conclusion – “the era of ‘green shoots’ is officially dead.” Now you see them, now you don’t because they never were there in the first place.
A recent issue of the Economist magazine asked “Why Is the recovery jobless? Maybe because it isn’t a recovery,” with no lack of supportive evidence. “In February, for the twenty-fifth time in 26 months, the American economy shed jobs,” and beneath the surface it’s much worse.
The official 9.7% headline number (so-called U-3; U-6, including discouraged workers, is 16.8%) obscures the true figure, what economist John Williams calculates at 21.6%, minus the manipulated deception. The Economist concludes that “the American economy simply hasn’t been doing as well as the output figures have suggested.”
Take GDP, for example. Rosenberg explains that Q 4’s 5.9% growth “came in two non-recurring items – inventories and capital spending (the former a temporary alignment of stocks with sales and the latter a late-year rush to take advantage of some tax goodies).”
Those aside, the economy slowed to less than 1%, may be revised lower, and the two headline figures won’t likely repeat, given a wealth of depressing data, including retail sales. The headline February 0.3% (0.8% minus autos) rise beat an expected 0.2% decline.
However, the raw data paints a different picture – minus 1.6% month-over-month in February (a month when rises usually occur) or four times as bad as the norm, and worst February in 12 years.
This (says Rosenberg) in spite of “the greatest stimulus experience in seven decades, and retail sales are still down 5% from the pre-recession peak and on a per capita basis 8%.” They’re lower than in January 2006 despite a 4.3% larger population, and adjusted for inflation, they’re down to 1996 levels on a per capita basis.
Some recovery, and little wonder the latest Conference Board consumer confidence survey showed only 6.2% of the public thinks business conditions are good – a record low.
As a result, several presidential tracking polls have Obama at from 44 – 49%, down from 68% in January 2009, and for Congress it’s worse at around about 30%. If conditions worsen, expect further erosion, and if an economic storm erupts, they may crash.
Money Creation Madness
Through September 2008, it took the Fed nearly 14 years to double bank reserves. Bernanke did it again in less than four months, swapping good assets for bad ones, bank held toxic junk, but only a small fraction of their total holdings, so the big ones remain insolvent.
Bailouts and massive borrowing are crowding out the private sector, making it hard to impossible for most businesses and consumers to borrow. In his March 15 commentary titled, “The Great Credit Squeeze,” financial expert and investor safety advocate Martin Weiss explains the dangers:
— total government borrowing (federal, state and local) at an annual pace of over $1 trillion; while
— businesses reduced existing debts at a near $1.1 trillion annual rate; and
— consumers virtually shut out entirely from credit markets “cut(ting) their existing mortgages at the annual rate of $365.1 billion and their consumer credit at the rate of $145.3 billion,” totaling an annualized $510.4 billion cutback.
Confirming the ongoing record bank credit contraction, “credit (overall) is actually being sucked out of the consumer and corporate economy at a torrid pace.” The real economy is starved because of massive government borrowing fueling a potential sovereign debt crisis like in Iceland, Greece, and Eastern Europe, and threatening Portugal, Ireland, Italy, Spain, the UK, and America.
Author Niall Ferguson sees three possible Greek outcomes, potentially affecting all heavily indebted countries:
— “one of the most excruciating fiscal squeezes in modern European history;
–outright default; (or)
— some kind of bailout,” but he omitted the one chosen as a long-term fix – the imposition of IMF austerity, including deficit reduction through:
— large government layoffs;
— a public sector 10% wage cut, including a 30% reduction in salary entitlements;
— a 20% cut in civil service bonuses;
— freezing pensions;
— a two-year increase in the average retirement age;
— increasing the current 19% value added tax to 21%;
— higher fuel, alcohol, tobacco, and luxury goods taxes; and it’s only the beginning with more painful measures to come.
IMF chief economist Olivier Blanchard warns that high-debt countries like Greece face budget squeezes for a decade or two, requiring “painful sacrifices”. Of concern is that spreading Greek troubles threaten a very dicey situation in Europe, America, and elsewhere – the reason David Rosenberg calls today’s crisis:
“a depression because (post-WW II) recessions were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses.”
It’s why financial expert Bob Chapman says America’s financial system “is on the edge of default,” and public anger is growing, a recent poll showing “92% of those surveyed wanted to unseat their current representative or Senator….and only 21% believe that government enjoyed the consent of the governed.”
Given bipartisan criminality, a president beholden to power, a Congress long ago bought and paid for, and the notion of a government of, by and for the people ludicrous, but not funny given growing unaddressed human desperation – about to worsen when the full Obama package becomes law, including worsening a dysfunctional healthcare system, destroying public education, putting the Fed (Wall Street) in charge of financial reform and consumer protection, and imposing IMF-style austerity.
IMF Austerity Arriving in America
It’s not coming. It’s here, being incrementally rolled out, including painful structural adjustments – some legislated, others unavoidable like the possibility suggested in Jonathan Laing’s March 15 Bloomberg.com article, titled “The $2 Trillion Hole” in public-employee retirement plans.
About 80% of them are defined benefit plans, meaning monthly payments are guaranteed, but can insolvent states and municipalities comply, especially given years of under-funding, fewer contributing workers at lower pay, and continuing large budget cuts, including mass layoffs and reduced benefits making a bad situation worse.
Enough for University of Chicago finance professor Robert Novy-Marx and Northwestern University’s Joshua Rauh to estimate a $3 trillion + pension funding gap for states alone, and if economic conditions worsen, who knows how much higher, or if millions of retirees will, in fact, get promised benefits, despite guarantees and taxpayers hit for the shortfall.
Corporations renege on Defined Benefit Pension Plans (DBPP) by cutting benefits, switching to Defined Contribution Pension Plans (DCPP), or going bankrupt and eliminating them entirely with the help of obliging courts. So why not states and municipalities, especially given to how close to the edge they are, forcing once unthinkable actions with sweeping consequences.
What’s happening regionally and locally arrived in America from reckless policies creating unsustainable rising debt levels – “debt peonage” for economist Michael Hudson that “can’t be repaid.” It’s the core problem, and no evidence shows “countries simply grow out of their debts,” according to University of Maryland Professor Carmen Reinhart and Harvard’s Kenneth Rogoff, or borrow their way out for Michael Hudson. When the going gets tough, some default, others inflate, but most rely on spending cuts and higher taxes, making people pay for political indiscretions – make that crimes.
Washington may impose higher taxes and devalue the dollar, but mostly expect benefit cuts, the idea being to end core ones including Medicare, Social Security, eventually Medicaid, plus others millions rely on but won’t get if tough measures are enacted. Expect them. Some are here. Others are coming through the same structural adjustments imposed on developing countries and just as painful and destructive.
One calls structural adjustment programs (SAPs) “a series of economic policies designed to reduce the role of government,” replacing its obligations with market incentives – in other words, privatize.
BusinessDictionary.com calls it “change effected in the basic framework of an economy by the impact of policy reforms, such as ‘liberalization’ of the economy by reducing protectionism and state intervention” – in other words, what government does, business does better so let it.
It’s pure Chicago School fundamentalism, Milton Friedman (1912 – 2006) its leading advocate for public wealth in private hands, unrestrained accumulation of profits, abolition of corporate taxes, and social services curtailed or ended. He called economic freedom an end to itself; opposed minimum wages, unions and an egalitarian society; supported a flat tax for the rich; wanted Social Security and Medicare abolished; believed private schools should replace public ones; wanted everyone to be on their own “free to choose;” and called profit-making the essence of democracy – a dark world view harmful to the majority and devastating to the poor and disadvantaged, characterized by SAP harshness.
They benefit capital, not people, and the more severe, the greater the harm. They’re a package of wage and benefit cuts, mass layoffs, privatization of government services, deregulation, de-unionization, currency devaluation, free capital flows, market-based pricing, free (not fair) trade, environmental harm, and at least one other few know about.
A provision in the 2008 Farm Bill lets Washington withhold up to 15% of Social Security and disability benefits from anyone with outstanding government debts, no matter how old. It applies to farm and small business loans, unpaid or disputed taxes, health care amounts veterans owe, and other government debt, potentially affecting millions late in life when they can least afford it.
Overall, the effects are devastating, including growing poverty, inequality, the destruction of the middle class and unions, hunger, homelessless, environmental harm, and police state measures to quell dissent – the essence of tyranny showing up in America and arriving at a fast clip.
Barack Obama – Neoliberal Neocon
As a candidate, he promised change, a new course, sweeping government reforms, addressing people needs, and “ensur(ing) that the hopes and concerns of average Americans speak louder in Washington than the hallway whispers of high-priced lobbyists….”
As president, he’s for business as usual, not the public. Besides unbridled militarism, imperial wars, handouts to the rich, shocking lawlessness, embracing torture, political persecutions, illegal spying, and police state rule, he ignores growing poverty, joblessness, homelessness, human despair, and budget-strapped states in favor of a discretionary spending freeze from 2011 through 2013, amounting to one-sixth of the budget. Defense, national security, and business needs remain unconstrained.
That was his State of the Union message, followed up by Executive Order (EO) 13531 on February 18 titled, “National Commission on Fiscal Responsibility and Reform.” In other words, soak the poor. Enrich the wealthy, the way it always works, mostly in recent decades, especially since 2000, and more than ever under Obama – central casting’s poster child for power.
His EO charges the Commission with “improv(ing) fiscal sustainability over the long run (and) balanc(ing) the budget” by 2015, – impossible given trillion dollar + annual deficits as far as the eye can see. Its real aim is to dehumanize America, strip off its democratic veneer, and transform it full-blown into Guatemala, Honduras, or occupied Iraq, Afghanistan, or Palestine through imposed austerity enforced by militarized repression.
As for “fiscal responsibility,” financial writer Ellen Brown calls it fear-mongering code language for:
“delivering public monies into private hands and raising taxes on the already-squeezed middle class,” not a measure “to save the country from bankruptcy.”
She quoted Professor Carroll Quigley from his 1966-published “Tragedy and Hope: A History of the World in Our Time,” saying:
Financial capitalism’s “far-reaching aim (is) to create a world system of financial control in private hands able to dominate the political system of each country and (world) economy….This system (aims for control) in a feudalist fashion by (world) central banks….acting in concert, by secret agreements arrived at in frequent private meetings and conferences.”
He was prescient, former high-level government and business insider, Catherine Austin Fitts revealing “a financial coup d’etat,” including engineering a “fraudulent housing and debt bubble, illegally shift(ing) vast amounts of capital” offshore, and “us(ing) privatization as a form of piracy – a pretext to move government assets to private investors at below-market prices and then shift private liabilities back to government at no cost to the private liability holder.”
It’s a government-business cabal to suck wealth from the many to the few, and from the wreckage propose reform, meaning sweeping austerity and greater than ever top down control, in America and globally – a cynical scheme using populist rhetoric and “slow burn” tactics for what Michael Parenti described in his 2002 “Global Rollback” article, saying:
“Throughout history (ruling classes most of all have wanted) all the choice lands, forests, game, herds, harvests, mineral deposits and precious metals of the earth; all the wealth, riches, and profitable returns; all the productive facilities; all the gainful inventiveness, and technologies; all the surplus value produced by human labor; all the control positions of the state and other major institutions; all public supports and subsidies, privileges and immunities; all the protections of the law with none of the constraints; all the services, comforts, luxuries, and advantages of civil society with none of the taxes and costs. Every ruling class has wanted only this: all the rewards and none of the burdens.”
As their faithful servants, Barack Obama, Congress, and the courts are delivering the whole package, or, in other words, poverty for the many and unlimited wealth and privilege for the power elite. When will enough concerned people act in their own self interest to stop them?
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at firstname.lastname@example.org.
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.