Global Economic Crisis

Russian roulette is the macabre  game of death, in which a revolver with a single bullet is passed around, each player pointing a gun at his head and pressing the trigger. There is, mathematically speaking, a one in six chance of blowing one’s brains to smithereens. This morbid game of chance, strangely enough, has now been adopted as the primary fiscal model by that once-august body known as the United States Congress.

As numerous commentators have observed, the two-party political oligarchy that dominates American politics has becomes hopelessly polarized. That polarization in turn has morphed into  political paralysis, leading to an inability by policymakers to craft rational economic directives in the midst of an ongoing global economic crisis. The result is tepid economic growth at best, fueled by massive, trillion dollar per annum deficits that require staggering amounts of borrowing by the U.S. Treasury to stave off national insolvency. Therein lies the problem. The Obama administration must periodically come to Congress for authorization to raise the national debt limit; without such congressional approval, the government loses its authority to borrow money.  In a situation where Congress is politically divided, with the Republicans controlling the House of Representatives and venting unrestrained hostility towards President Obama,  the entire economy of the United States is held hostage to this political version of sausage-making. 

The last stand-off over the debt limit led to The Budget Control Act of 2011. The GOP acquiesced to raising the debt limit on condition that the Obama administration concurred with over 900 billion dollars in spending cuts over the next decade. And herein lay the minefield.  Since the Democrats and Republicans could not reach consensus on  those precise deficit reduction measures, they did agree  to creating a poison pill for themselves, which has since become known by the non-pharmaceutical name of sequestration. If Congress could not agree on which spending cuts to implement, arbitrary reductions in federal spending outlays would occur automatically, with 85 billion dollars in budget cuts coming into effect in the current fiscal year.

That wasn’t supposed to happen, for this was playing Russian roulette with fiscal policy and management of the overall national economy. Who in their right mind among the two political parties controlling Congress would want the entire globe to witness American legislators playing a game of Russian roulette as their methodology of economic management?  Yet that is exactly what has now happened.

There are arguments currently underway as to how much of an impact 85 billion dollars in arbitrary spending reductions will have on a still fragile economy. These concerns miss the essential point.  The fact that America’s political establishment has allowed such a spectacle to occur presents a discordant image to the global bond market that is essential for lending the credit that keeps the United States solvent. And increasingly, those critical lenders are seeing the fiscal decision-making of the United States being transformed into a farcical display of political expediency. There will come a time when  the bond vigilantes will simply have had enough of an increasingly dysfunctional political system still acting as though it presides over an unassailable superpower. When that time has come, the mother of all sequestrations will have arrived.

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The U.S. Commerce Department has just released data showing that the American economy shrank by 0.1 percent in the  fourth quarter of 2012. This data is seen as a shocking development, particularly after the claimed growth in GDP of  3.1 percent in Q3 of 2012. The miserable data for Q4 of last year marks the first contraction in GDP of the U.S. economy since the last recession of 2008-2009.

The commentators are already trying to spin the Q4 data, attributing it to, among other things, reduction in inventories and reduced military spending by the Pentagon. However, spin aside, it is clear that nearly five years after the supposed end of the last recession, the U.S. economy is still on life support, depending on a trillion dollars every year in deficit spending to remain afloat, and create artificial “growth” in GDP.  Now, despite the massive borrowing binge by the U.S. government and its policymakers, even tepid growth cannot be assured. At best, the American economy is at stall speed, and with increased talk by politicians in Washington of fiscal consolidation and austerity, the worst may be yet to come.

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

 To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

In a world dominated by high finance, how far would Wall Street go in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

 

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The so-called fiscal cliff, a creation of Washington politicians, means that a tsunami of tax increases and spending cuts will batter the American economy, due to, among other things, the expiration of the Bush tax cuts. As the United States is still coping with a severe economic  crisis, and depends on structural mega-deficits to keep its economy afloat, the fiscal cliff threatens to derail for what passes for an economic recovery-one that is feeble at best.

The hope of forestalling a major fiscal drag on a weak American economy is a compromise involving increased revenue generation combined with selective spending cuts. But the Republicans, who control the House of Representatives, and the Democrats, who control the White House and the Senate, thus far are unable to compromise. Thus, global markets watch in stupefied wonder as the American political establishment morphs into a circular firing squad, as witnessed with the latest shenanigan.

House speaker John Boehner boasted that his GOP caucus would pass his so-called “Plan B,” which offered feeble tax increases along with far more massive social spending cuts, while leaving military spending increases intact. However, even a token tax increase limited to only those earning more than one million dollars per annum, was more than the Tea Party stalwarts of the GOP could stomach. Instead of a vote, Boehner embarrassingly withdrew his own “Plan B,” and in the process turned what passes for the modern-day Republican Party into a laughing stock. Meanwhile, America’s creditors watch nervously, as the political games in Washington continue undiminished, while thoughtful economic policy takes a back seat to ideological priorities.

Amid tepid economic growth that can only be maintained by massive  fiscal deficits, the political establishment in Washington DC, especially within the GOP, is looking increasingly dysfunctional to a world in which  America’s economic dominance is likely to be surpassed by the new emerging economic giants, China and India, perhaps within the next 10-20 years. Unless a moment of sanity can prevail in Washington, whereby economic policy is crafted by real economists instead of fringe ideological movements, the fiscal cliff that will ensue will contribute significantly towards the permanent economic decline of the United States.

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

 To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

In a world dominated by high finance, how far would Wall Street go in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

 

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The Bureau of Labor Statistics latest jobs report suggested  114,000 non-farm jobs were added in September, while the national unemployment rate dropped from  8.1 percent to 7.8 percent. With the U.S. presidential election only one month away, the Republicans naturally claimed that something was fishy about the jobs report. Just as naturally, the Obama administrations maintained that the BLS statistics are compiled by non-partisan professional bureaucrats. So, what’s the answer?

They are both right. The BLS numbers may be honestly compiled, but they are based on abstractions and sampling assumptions, and are frequently corrected long after their original release. Furthermore, the numbers being argued about are the U3 data, which is an incomplete measure of unemployment in the U.S. economy. The more reliable U6 data, which includes part-time workers unable to find fulltime employment, is still well into double digit figures.

The more interesting aspect of the latest LBS data is this; even if the 114,000 new jobs figure is correct, it is below the level required to match new entries into the labor force. In other words, the U3 (and U6) rate should have risen instead of declined. Why didn’t it? Simple explanation: the long-term unemployed are being “removed” from the statistical  measurement of the labor force. If the BLS considers you a “discouraged” worker, you are no longer compiled under the data for unemployed workers. This may look more positive for the upcoming presidential election if you are President Barack Obama, but it does nothing to facilitate economic growth.

There is another dimension to the Bureau of Labor Statistics data which demonstrates its utter irrelevancy to the overall health of the economy. The numbers in the BLS report, or the claims by the Obama campaign regarding total jobs creation since the president took office, not to mention GOP candidate Mitt Romney’s boast that as president, he would somehow “create” 12 million new jobs, miss what is most relevant to a comprehensive economic recovery in the United States.  The real issue is the decline in purchasing power by the U.S. labor force, concomitant with a parallel increase in economic power of a very small financial oligarchy. As is well know by labor statisticians, frequently the new jobs created (or promised) are actually lower paying fulltime jobs, or part-time positions with significantly reduced levels of compensation. The cumulative impact  of this phenomenon has been the erosion in the  size and collective purchasing power of America’s middle-income  labor force, leading to weaker consumer demand and a collapse in housing values.  Neither President Obama nor Governor Romney has on offer a realistic and cogent plan to address the real core issue underlying the factors that have left the U.S. labor force diminished not only in its employee count, but more importantly, in its financial capacity. Until the latter issue is addressed, all the promises made by American politicians for a future economic recovery are political rhetoric and nothing more.

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

 To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

In a world dominated by high finance, how far would Wall Street go in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

 

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In its third revision of GDP data for the second quarter of 2012, the Bureau of Economic Analysis  has posted a dismal set of numbers. The U.S. economy “grew” at a tepid rate of 1.3 percent in Q2 in 2012, versus a slightly higher but still weak rate of 2 percent in Q1. A rate of 1.3 percent growth, which is virtually stall speed, was only made possible by America’s massive structural mega-deficits. In FY 2012, the U.S. federal government deficit is projected to run at $1.3 trillion, representing more than 40 percent of the entire federal budget.

The anemic GDP figures for Q2 reflect an economy that remains in deep crisis. The only factor preventing a compete free fall of the U.S. economy are the massive deficits, which are unsustainable. Even a modest reduction of the deficit, however, would plunge the United States into a deep recession.

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

 To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

In a world dominated by high finance, how far would Wall Street go in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

 

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An economy does not have to be in technical recession in order for it to be mired in economic crisis. That is what the latest GDP figures from the U.S. commerce department reveal about the American economy. In Q2 of 2012 the U.S. economy grew at an anemic 1.5 percent, according to the latest data just released by the Commerce Department. This represents stall speed, a level of growth so low, particularly in the context of massive government deficits and unprecedented monetary easing by the Federal Reserve, it is a future indicator of a looming recession.

More than a trillion dollars in borrowed money, representing  a third of all government expenditures, can at best produce a level of artificially induced growth that is so contracted, it represents a fraction of annual government borrowing- which in itself is merely future demand pushed back into the current fiscal year. Just as a plane that loses momentum will enter a stall, leading to a downward tailspin, it seems that the U.S. economy is close to experiencing the same phenomenon.

WALLSTREET KILLS-A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

To view the YouTube video overview of “Wall Street Kills,” click image below: 

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Perhaps the greatest money printer in monetary history, Ben Bernanke, the iconic chairman of the U.S. Federal Reserve, has publically stated his revised, gloomy economic forecast for the United States. According to Bernanke, the Fed now projects GDP growth in 2012 of 2.4 percent, down from nearly 3 percent earlier in the year. This is stall speed GDP growth, despite being goosed by more than a trillion dollars of deficit spending by the Federal government in the current fiscal year, and a bucket load of monetary stimulus measures by the Federal Reserve.

What is Bernanke’s response? An extension of a program for swapping short term bond purchases for longer-termed bonds, with the bizarre name of “operation twist.” The name alone tells us how ridiculous the Fed has become under the tutelage of Ben Bernanke. The reality, as plain as daylight, is that without a heap of borrowed money and monetary gimmicks, the American economy would implode. Unfortunately, the measures adopted by Bernanke and other policymakers, which only succeed in kicking the can down the road a bit more, assure us that when the bill needs to be paid, the cost will be even more dear for the U.S. and global economy.

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The U.S. Commerce Department issued revised figures for the first quarter of 2011. It had earlier reported an annual rate of anemic GDP growth of 1.9 percent for Q1. Even if that number had been accurate, it was insufficient to reverse the catastrophic rate of unemployment and underemployment in the United States. The revised numbers are now in; the Commerce Department now says that actual GDP growth in the first quarter of 2011 was a virtually non-existent 0.4 percent. It also issued preliminary growth figures for Q2 of 1.3 percent, worse than expected. As with the Q1 data, it is likely that future revisions will show that Q2 did even worse.

What conclusions can one draw from this miserable economic data? Two things come to mind. In the first place, any preliminary numbers on the U.S. economy that derive from official government sources are highly suspect, and likely to be overly optimistic. Secondly, after an unprecedented level of public debt that is leading America towards fiscal ruin, the best that can be accomplished by the Washington policymakers is a Japanese-style “L” shaped recession. 

Now, what happens to the U.S. economy when the pump-priming stops, as will inevitably happen?  With revenue at historic lows and public expenditures at unprecedented highs as a proportion of the national economy, the frail American  economic edifice is floating on an ocean of unsustainable debt. While the current fiscal trajectory of the United States is headed towards a calamitous train wreck, a self-imposed and immediate elimination of the deficit, or even talk of such a possibility, will further exacerbate the economic crisis that never ended in America, despite official pronouncements.

 In the meantime, the U.S. political establishment cheerfully debates the debt ceiling. Both sides of the argument are in denial. The bottom line that both Republicans and Democrats refuse to confront is that the authorship of the present economic and fiscal crisis is bipartisan. The only hope of avoiding a full-fledged American sovereign debt crisis and its apocalyptic ramifications is creating a path towards much higher levels of growth that will reduce the ratio of debt to GDP to levels that can be sustained into the future. Instead of a serious policy debate, however, both parties are engaged in an ideological debate on cloud nine, divorced from the miserable reality of an American economy that is imploding.

If this is not an indication of dysfunction in Washington, I don’t know what is. Maybe the policymakers are not worried because they know that Fed Chairman Ben Bernanke will soon ramp up his printing press again. I am more inclined towards the vision of Dante than Bernanke, when it comes to the future of the U.S. economy.

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It is not the “Road To Morocco” ( for those who remember the classic film with Bing Crosby and Bob Hope) but he proverbial road to ruin that Fed Chairman Ben Bernanke is leading the U.S. economy towards, at flank speed. Under his leadership, the last meeting of the Federal Reserve’s FOMC of 2010 confirmed the zero interest rate policy being maintained, and the policy decision to purchase $600 billion in long-term U.S. Treasury debt. This, despite claims by many punch-drunk economists that the American economy is recovering, and at a heightened pace. Give Bernanke credit for one thing; he knows the supposed economic growth is not real, but rather marginal increments painfully extracted through massive public borrowing. But his solution, in effect creating even more public stimulus, this time through monetary policy, is totally antithetical.

Supposedly, Bernanke’s stratagem is to force down long-term interest rates through his $600 billion second round of quantitative easing. However, the bond market is reacting in a manner contrary to expectations. With Europe already mired in a deep sovereign debt crisis, the prospect of a surge in now record low interest rates on U.S. sovereign debt is becoming increasingly likely, due to the Fed’s policies. Should the U.S. encounter anything remotely like the spike on bond yields currently plaguing Europe, the game is up. Not even Bernanke could print enough money to cover the ruinous implosion an increasingly likely sovereign debt crisis will have on the already fragile American economy.

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The NBER has issued a consensus determination that America’s Great Recession, which it said began  in December 2007, came to a technical end in June 2009, after GDP growth resumed. It is the NBER that economists look to in making the call on the initiation and termination of economic recessions in the United States.

While declaring the Great Recession over, the NBER concedes that the recovery has been unusually weak, after enduring the sharpest and longest downturn since the Great Depression of the 1930s.

I will put my own spin on the NBER report. It may be technically correct, but the resumption of GDP growth was based entirely on a massive explosion in public debt, the consequences  of which are excluded from the NBER’s take on the American economy. However, by acknowledging the anemic character of the recovery, it is indirectly pointing to the unsustainability of the recovery. Declining consumer spending capacity, essential for sustained economic growth, will ensure that the massive public debts cannot be serviced in the long term. This will lead to a global sovereign debt crisis and likely long-lasting economic depression.

global economic crisis Great Recession, National Bureau of Economic Research, NBER, U.S. economy