Mainstream newspapers have been running articles for weeks and months about how workers’ feelings about the economy don’t match the improving economic data. But these articles are talking about the fall in inflation, which did go down to a 2.9% increase in average prices over the past year, the lowest since April of 2021. And while wages have been outpacing prices recently, the average number of hours has fallen as the labor market has been weakening and the unemployment rate has risen. Put it all together and workers did lose ground again in July of 2024.

#SanJoseCA #inflation #economy #unemployment #recession

The stock price rout was led by Japan, where stock prices fell 12%, the worst day since “Black Monday” in October 1987, when U.S. stocks fell 22%, the worst one-day fall ever. A particular factor in Japan was that the Japanese central bank raised interest rates last week, causing a sharp jump in the value of the Japanese yen.

Back in the United States, the so-called “magnificent seven” of tech companies, including Alphabet (parent corporation of Google), Amazon, Apple, Meta (parent company of Facebook), Nvidia (maker of chip used in artificial intelligence applications) and Tesla have been leading the stock market higher for months.But on Monday, these stocks fell harder on average, as doubts about the profitability of AI joined with recession fears.

Falling stock prices are not a good predictor of a coming recession – in fact the biggest fall in October 1987 had little impact on the economy. But a sustained fall could affect spending by the wealthiest Americans, who own most stocks. As more and more working-class Americans have been cutting back on purchasing and turning to credit cards for necessities, wealthy Americans have kept up spending.

More worrisome is that many economic signs are pointing towards an economic slowdown that could lead into a recession. Claims for unemployment are on the rise. More and more credit card and car loan borrowers are falling behind on their payments. The manufacturing sector has been shrinking, albeit slowly.

#SanJoseCA #SP500 #S&P500 #Economy #Unemployment #Recession #Stocks #StockMarket #AI

The payroll jobs report was also weak, with only 114,000 net new jobs created in July, according to a survey of businesses. This number was much less than the 175,000 new jobs that economists had expected. In addition, the report reduced job gains for May and June by 29,000. The survey of households that is used to determine the unemployment rate also continued to report far fewer people getting jobs, with the number employed rising by only 67,000.

Among the hardest hit in July by rising unemployment were workers without a high school degree, whose unemployment rate rose to 6.7%, up 0.8% from June. Latino workers were the hardest hit among oppressed nationalities, with their unemployment rate rising 0.4% to 4.6%.

The unemployment rate for men rose 0.2%, twice the rise of women. It is typical of recessions that the unemployment rate for men rises faster than the rate for women.

In another sign of weakness, the “diffusion index” fell below 50%, to 49.6% last month. This means that more industries were losing jobs than hiring more, showing that the employment weakness was broad based.

The weak jobs report was a shock to investors on Wall Street, who had bought into the myth of a “soft landing” where inflation comes down without unemployment rising much. In fact, such talk of “soft landings” tends to multiply right before a recession.

With a recession looming, the blame game has begun. Many are trying to blame the Federal Reserve Bank for not lowering interest rates sooner. But all this amounts to is that the Fed doesn’t see the future. Even if the Fed had lowered interest rates earlier, this would not have prevented a future recession. Recessions have been around in the United States since the 1830s, almost a 100 years before the Fed began raising and lowering interest rates. Economic booms and busts are a feature of a capitalist economy.

#SanJoseCA #Economy #Recession #Unemployment

This led to an outcry among Republicans, reinforced by many articles in the corporate media, that a recession had begun. Republican leaders immediately showed their lack of basic economic sense, saying that the American people were already feeling the pain of recession. In fact, the pain that American workers and small businesspeople are feeling is inflation, which is not a sign of a recession. Just look at the last recessions in 2020 – who was complaining about inflation?

Unfortunately, the corporate media sowed confusion by spreading the common, but wrong definition that six straight months of declining GDP means that there is a recession. Among the worst was the Washington Post, which found an economist to quote (or misquote) saying that the last time that there was a recession without six months of declining GDP was in 1947. In fact the 2001 recession did not have six straight months of GDP falling. In addition the recessions in 1960 and 1970 did not have six straight months of declining GDP.

One reason that two quarters of falling GDP is not used by economists is that most recessions since World War II (when GDP figures were available), have a “double-dip” where there is a bounce in economic activity during a recession. Because of this economists also do not conclude that a recession is over as soon as the economy begins to grow again – the growth needs to be sustained.

The official definition of a recession is a lasting slowdown in the economy as shown by employment, sales, income and industrial production. The most important measure is employment, or the number of new jobs created, which showed an increase of 372,000 in June – not a sign of a recession!

The main reason for the decline in GDP was a decline in business inventories, or the unsold goods on store shelves and warehouses. The decline in inventories was 2% of GDP, more than twice the overall decline. Falling inventories were also a major cause of the decrease in GDP in the first quarter of 2022. Both were an unwinding of the huge build-up in inventories in the last three months of 2021. This build-up was so big that it drove GDP to the highest rate of growth (6.9%) since World War II, except for the post-pandemic bounce in 2020.

But even leaving aside the drop in business inventories, the GDP report showed many signs of present and future weaknesses. Housing construction fell by three-quarters of one percent, showing that the Federal Reserve’s campaign to raise interest rates is have an effect as mortgage interest rates surged and housing sales have fallen. Government spending on goods and services fell by one-third of one percent, showing the ending of the few remaining COVID-19 programs. Business investment fell by three-quarters of one percent. While all of these figures were small, they together outweighed the three-quarters of one-percent increase in household spending on goods and services.

In fact the only strong increase in the report was in U.S. exports. But this is unlikely to continue. Not only do exports go up and down a lot, but the rise in the U.S. dollar is making U.S. goods and services more expensive for other countries to buy. A number of other countries’ economies are struggling, in particular Germany.

The report on Personal Income and Outlays for June by the Bureau of Economic Analysis on July 29 showed that the Federal Reserve’s favored inflation measure, the Personal Consumption Expenditure Price Index hit a new 40-year high, rising 6.8% over the year earlier. This means that according to the Fed, there is no break in rising inflation. This means that the Fed will continue to increase interest rates in big steps. Many economists see another three-quarters of a percent increase likely in September at the next meeting of the Federal Open Market Committee, which sets short-term interest rates.

The business cycle, or the cycle of recession and economic expansion, date back to before the Civil War in the United States. Recessions began long before there even was a Federal Reserve, or a large and active federal governments. While the government and the Fed do not cause recessions, they can influence the timing and depth of a recession. The fall in government spending and continuing increase in interest rates will move up the onset of a recession. With the Fed focused on fighting inflation and the renewed effort to cut the budget deficit in Washington DC, the next recession could last longer and cause more pain to working Americans than economists expect.

#SanJoséCA #recession #economy

For the first time in almost two months, the total number of people receiving government unemployment benefits across all programs rose. For the last seven months, there has never been fewer than 20 million people getting aid, which is more than 12% of the those who are working, or who are not working and are looking for work.

More bad news on the economy also came in the report on October income and spending. Personal income sank 0.7% as compared to September. This was mainly due to less government unemployment aid, showing that many people who lost their jobs in April are losing their benefits, as opposed to getting jobs. Personal spending rose, but at less than half the rate of growth as September.

Weighing on the economy is the surging pandemic, with an average of more than 175,000 new infections a day for the last week. In the last day, more than 2300 Americans died of COVID-19, within striking distance of the all-time high set in April. A record 88,000 people are now hospitalized with the coronavirus, straining hospitals across the country. While many field hospitals are being built, the problem is lack of staff, especially those who are trained.

Despite a warning from the Centers for Disease Control not to travel, 4 million people have already taken to the air for the holidays. Many doctors and public health workers are worried about a spike in the middle of the surge that could overload the health care system and lead to a rising death rate at the end of the year.

On top of the growing health crisis, almost two-thirds of those collecting benefits, or more than 13 million people, face a financial cliff in a month. On December 26, the federal PUA and the federal Pandemic Emergency Unemployment Compensation, for people who have hit the six-month time limit for regular state benefits, will wind down. While the Democrats in the House of Representatives passed a bill to extend benefits back in May, the Republicans in the Senate have opposed this and still haven’t passed a bill to be able to negotiate with the House.

In addition, the moratorium on evictions, the extension of student loan payments, and the forbearance of home mortgages are also running out with the new year. According to a survey earlier in November, there are almost 30 million tenants behind on their rent, which could lead to millions of evictions in 2021. State and local governments also face hundreds of billions of dollars in budget deficits that have to be closed over the next 18 months. These will lead to even more cuts and job losses, especially in public schools and colleges.

The Trump administration is now cooperating with President-elect Biden in a transition. But the Trump team seems to be going out of its way to hurt the economy before the administration ends. Last week, Trump’s Treasury Secretary Stephen Mnuchin ordered the Federal Reserve to return billions of dollars to the Treasury. This money guarantees against any losses from three Federal Reserve lending programs. The Fed’s lending to large corporations, medium size businesses, and state and local governments backed by the Economic Stabilization fund will now have to wind down just as the economy turns down again and pandemic relief programs are coming to an end.

#SanJoséCA #recession #FederalPandemicUnemploymentCompensationFPUC

San José, CA – On Friday, November 5 the U.S. Department of Labor released its monthly employment report for October, as President Trump faced defeat in the presidential election. The number of long-term unemployed, who have been out of work for more than six months, jumped by more than a million to outpace those recently laid off for the first time. The number of people collecting long-term unemployment under the federal Pandemic Emergency Unemployment Compensation or PEUC, and the state Extended Benefits, rose by almost 500,000 in the week of the unemployment survey alone.

The official unemployment rate fell to 6.9% from 7.9% in September. But this is still double the February unemployment rate of 3.5%. The official report, based on a survey of households, is also far lower than the number of people who are collecting government aid. In the same week that the survey for the unemployment report was taken, October 12-17, there were more than 21.5 million people who collected government aid, almost double the 11.1 million who said that they were unemployed.

As expected, the number of new jobs created continued to slow, with 638,000 new jobs created, down from 672,000 in September. But despite the large number of new jobs, more than 10 million workers remain out of work after having lost their jobs during the economic crisis. The jobs report showed that state and local public colleges and K-12 schools shed almost 160,000 jobs as they continue to cut back because of budget crisis despite the increasing demands that the pandemic has put on schools.

This past three days the pandemic continued to set record highs for new infections. The United States had more than 100,000 new cases for the first time ever on Wednesday, more than 120,000 on Thursday, and then more than 130,000 on Friday. Hospitalizations are also on the rise as are deaths, which have been more than 1000 per day for the first time since August, when the United States was in the midst of its second wave.

More and more state and local governments are re-imposing restrictions to try to contain the virus or slowing or stopping relaxation of restrictions. The combination of COVID-19, the cold weather of winter and growing economic distress are a particular danger to the leisure and hospitality industries including travel, hotels and restaurants. These industries added more than 271,000 jobs in November, or more than 40% of the total job gain. More of the job gains in November were also temporary jobs, which can most easily be cut by businesses.

The end of the year is also the deadline for the federal Pandemic Unemployment Assistance for self-employed and gig workers. If Congress does not act, more than 13 million people could lose their assistance in the last week of December. Forbearance on student loans is also set to end at that time, and more and more tenants will be timed out of the Centers for Disease Control eviction moratorium over the next two months.

#SanJoséCA #PeoplesStruggles #recession #COVID19PandemicAid

San José, CA – On Thursday, October 15, the U.S. Department of Labor reported the biggest one week increase in new claims for unemployment insurance since late July. The latest report for the week ending October 10 saw 898,000 new claims for regular state unemployment insurance, up 53,000 from the week before.

The broadest measure of unemployment insurance – which includes those actually being paid under the regular state UI, the Federal Pandemic Unemployment Assistance, the state Extended Benefits and the federal Pandemic Emergency Unemployment Compensation (PEUC) – fell by 215,000 for the week ending September 26. But the Extended Benefits and PEUC, both of which provide benefits for those whose regular unemployment insurance has run out after 13 weeks, was up by more than 820,000 the same week, showing the growing numbers of long-term unemployed.

The most recent jump in UI claims reflects the growing wave of layoffs being announced by major corporations. There is also a small but growing number of smaller businesses being done in by the long-feared third wave of the pandemic. There were more than 60,000 new cases of COVID-19 infections, the highest since August. Forty-four states (and the District of Columbia) reported higher rates of new infections.

The recession and the petering out of federal government aid, including the additional $600 a week in unemployment insurance benefits, has pushed 8 million more Americans into poverty, according to a report released by Columbia University. Almost a third of this group are children. African Americans, Chicanos and Latinos are being forced into poverty at twice the rate of white Americans as lower-paid workers are hit the hardest.

#SanJoséCA #recession #PandemicUnemploymentAssistance

Even worse, almost 90% of the people dropping out of the unemployment rolls were women, and only 10% were men. This recession is different from earlier recessions, where the unemployment rate for men climbed higher and faster than for women, as layoffs hit construction and manufacturing. This time the COVID-19 pandemic hit service industries such as travel, lodging and food service, affecting women workers harder. Thus, the official unemployment rate for women last month was higher than for men.

With many schools and childcare centers closed, women often are expected to sacrifice their work for domestic roles. The fact that women earn only 60-70% as much as men with similar education also makes an economic case for staying at home.

Black women were the hardest hit, being twice as likely as white women to have been forced out the labor force. This recession has been increasing inequality in many ways, from greater job losses for low-paid workers (while higher-paid workers were more likely to be able to keep working from home), to the jobs which are coming back the fastest for white men.

Job growth weakened even more in September. 661,000 new jobs were created, less than half the 1.5 million in August and fewer than economists had estimated. Governments were the biggest losers, with almost 300,000 jobs cut. Tax revenues have fallen with the recession, leading local and state governments to cut their budgets and lay off workers.

The economy is still down 11 million jobs as of September, having made up about half of the 22 million lost in March and April. But month after month the return of jobs has slowed, and may end altogether in October as Disney, the airlines, and other large corporations announce tens of thousands of layoffs to come. The economy has lost more jobs at this point than during the last recession and financial crisis between 2007 and 2009.

While the hospitalization of President Trump because of COVID-19 reminds us of the ongoing pandemic in the United States, the increase in job losses are becoming more like a typical recession. Job losses in industries not directly affected by the pandemic are now approaching those of the last recession. This can be seen in the large layoff announcements by oil and gas giant Shell Oil, and the military and weapons corporation Raytheon.

In the meantime, the latest report by the U.S. government on personal income shows that it fell 3.5% in August after adjusting for taxes and inflation. Almost the entire drop was caused by the end of the $600 per week in additional unemployment insurance benefits, which led total UI benefit payments to fall by more than half.

With this comes the growing need for more federal aid for the unemployed, for state and local governments, and for school districts that are struggling to get by. The Democrats in the House of Representatives have cut their original $3.5 trillion aid bill by more than a trillion dollars to $2.2 trillion in efforts to come to a compromise agreement with the Republican Senate and the White House. But the Republicans have shown no effort to compromise, cutting their original $1 trillion package to only $350 billion.

#SanJoséCA #recession #COVID19

The report also showed a continued rise in the Pandemic Emergency Unemployment Compensation or PEUC as well as the Extended Benefits or EB programs. Both of these programs provide an additional three months of benefits to jobless workers whose regular unemployment benefits have run out. This shows the continuing rise of the long term unemployed who are at greatest economic risks.

The dismal drumbeat of corporate announcements of mass layoffs continued in the past week. American Airlines confirmed that it was going to lay off more than 19,000 workers on top of the thousands who have taken furloughs, retired, or otherwise left the company. United Airlines has a standing announcement of 30,000 layoffs as the passenger traffic is down by more than two thirds as the pandemic continues to burn through the United States.

There are growing signs that households are coming under increasing stress with the continuing recession, made worse by the end of the additional $600 a week in unemployment benefits. The Consumer Confidence Index for August fell for the second month in a row, to 84.8, down 36% since the recession began in February. Food sales also fell in the first two weeks of August.

While President Trump signed an executive order calling on federal agencies “examine” steps that they could take to prevent evictions and foreclosures, a tidal wave of evictions is building from coast to coast. The end of the CARES Act federal eviction and foreclosure moratoriums, combined with the end of state and local moratoriums, could put 20 to 30 million tenants at risk of evictions.

President Trump’s executive order on unemployment insurance is off to slow start, with only a handful of states starting the addition $300 a week. While about two-thirds of states have said they would participate, they typically would not start paying until September. Even then, the initial federal commitment is only for three weeks, with only about five weeks of money available in the FEMA or Federal Emergency Management Agency.

The Trump administration’s program also excludes many jobless workers even in the states that adopt the plan. Low-wage and workers in states with stingy benefits who get less than $100 a week won’t qualify. Further, workers have to certify that their job loss was COVID-19 related, which was not a condition to get the original $600 in additional benefits under the CARES Act. Further, the Trump program allows state governments to reinstate the job search requirement which had also be waived under the CARES act.

As for Trump’s pet program of deferring the payroll taxes that fund Social Security and Medicare, major capitalist organizations such as the U.S. Chamber of Commerce have recommended that their members not defer taxes as they could be stuck with paying the bill later on.

#SanJoseCA #PeoplesStruggles #recession

Recession fears were also fed by a gloomy report from the World Trade Organization, which predicted that world trade growth would fall to only 1.2% in the coming year, one of the lowest rates since the last recession. The WTO estimate is made every six months and is the third drop in a row. While still expanding, world trade has been weighed down by economic weakness in Japan and Germany, the second and third largest capitalist economies after the United States.

Trade and manufacturing have also been hit by Trump’s trade war with China. His tariffs on imported parts and materials have made it more expensive to make goods in the United States, and China has also retaliated by placing tariffs on U.S. exports of goods.

On October 2, the stock market slide deepened, with losses of almost 2% as the Dow Jones Industrial Average fell almost 500 points. Recession fears mounted as another sign of economic weakness came with the ADP report on private employment in September. The ADP report saw only 145,000 new private sector jobs, much lower than the 215,000 monthly increase a year ago.

U.S. stocks followed even steeper declines in Europe, where stock indices in Germany, France, Italy and the U.K. fell about 3%. European economies have been even weaker than the U.S. economy, and there are concerns about what happens as the BREXIT deadline of October 31 approaches. The United States has also been a major export market, and a recession in the United States would hurt Europe.

#SanJoséCA #US #PeoplesStruggles #recession #economy #stockMarket #DonaldTrump

San José, CA – The New Year is starting off much the way 2018 ended: with U.S. stocks being hammered again. On Thursday, January 3, the Dow Jones Industrial Average (DJIA) fell more than 600 points, the technology heavy NASDAQ fell more than 200, and the broad S&P 500 fell more than 60 points. All the averages fell more than 2% to put the year into the red.

Apple Corporation, which just a few months ago was the first company to rise above $1 trillion in stock market value, fell more than 8% after reporting that sales and profits were down for the last three months of the year. Delta Airlines also cut back on their estimated sales in the fourth quarter, dragging down other airlines with it. The Institute for Supply Management released their report on December manufacturing, which fell 8 points from November, the biggest one month drop since the financial crisis in 2008.

These reports add to the growing view that the almost ten year economic expansion is coming to an end. These cycles of boom and bust are a regular feature of capitalism. Businesses make a profit by paying workers less than the value of what their labor produces, so they are not able to buy everything they make. At the same time, companies reinvest their profits to be able to produce more and more. This leads to what Marx called a “crisis of overproduction” or what is commonly called a recession.

Recessions cut deeply into corporate profits, which are the foundation of stock prices. As more signs of a coming recession are revealed, investors are selling stocks and forcing prices down.

#SanJoséCA #PeoplesStruggles #recession #stockMarket

San José, CA – Casting a shadow on the stock market are the growing number of economic statistics that point to a recession in 2019. Almost all mainstream economic forecasters expect economic growth to slow down in 2019 as the impact of the 2018 tax cuts wear off; the forecast is for 2.4% growth, about the same as in 2017. But few predict a recession.

The most commonly looked at economic statistic is the official unemployment rate. Today the nationwide official unemployment rate stands at 3.7%, the lowest rate in a generation. But while the official definition of when a recession starts depends heavily on a measure of net new job creation, employment and unemployment are not useful to predict the start of another recession. But by the time employment starts to fall and the unemployment rate rises a recession has already begun.

The best predictor of a recession is a large and continuing decline in what economists call “fixed investment spending.” This is not the investments that most individuals make (stocks, bonds, mutual funds, etc.), but rather business investment in new plant and equipment, and the construction of new homes. And these sectors are looking very weak right now, despite a boost early in the year from the tax cut.

Looking at the latest report on the Gross Domestic Product (GDP) for the third quarter (July to September), fixed investment only increased by one-fifth of one percent (0.2%). More recent monthly reports on business spending on so-called “non-defense capital spending (without transportation)” showed new orders fell 0.6% in November, the third drop in the last four months.

Spending on the construction of new homes has also been weak, with the amount dropping in the July to September quarter, for the third in a row. While the declines have been small, no relief is in sight as the market is squeezed by rising mortgage interest rates and more and more unaffordable homes. Completion of new homes in October and November are running about 8% lower than in the third quarter (July to September).

Another sign of near-term economic weakness was the large buildup of unsold goods in the July to September period. The increase in inventories made up 2.33% of the total 3.4% gain in production, or GDP during this period. This meant that the increase in actual sales of American-made goods and services was an anemic 1.1%. The large buildup in inventories could lead to less production in the next three to six months.

Part of the reason for this was the big jump in imports and slump in exports. Ironically, the Trump administration tariffs seemed to hurt U.S. exports, because of retaliation from other countries, than it did to slow the growth in purchases of goods and services from other countries. Another factor is weakness in the world economy: the economies of both Japan and Germany both shrank in the third quarter, and many developing countries are having a hard time economically.

One of the reasons that mainstream economists do not see a recession coming is that they see a capitalist economy as fundamentally stable. From this point of view, only some kind of ‘shock’ coming from outside the economy, like misguided actions by the Federal Reserve (the U.S. central bank) on interest rates or mistaken policies by the government, such as shutting down or starting a trade war. This is true not only for free-market economists, but also most Keynesian economists who support more activist government economic policies.

But Marxist economics sees the boom and bust cycle coming from fundamental features of capitalism. On one hand, the exploitation of workers, that is, paying them less than the value that labor creates, limits their ability to spend and consume. On the other hand, the profits from this exploitation is reinvested in new technology, equipment, and structures that increase the ability to produce. The contradiction being the limited ability to consume and the growing ability to produce lead to what Marx called a “crisis of overproduction,” which is what we call a recession today.

#SanJoséCA #PeoplesStruggles #recession

Masao Suzuki is a leading member of the Freedom Road Socialist Organization (FRSO) who follows the economy. Fight Back! interviewed him on March 1, after another drop in U.S. stock market.

Fight Back!: Earlier in February, when the U.S. stock market lost 10% of its value, some people were saying that this was the dawn of a major economic crisis. What do you think?

Masao Suzuki: Large declines in stock prices have gone hand-in-hand with economic crises. The best-known example was the famous stock market crash of October 1929, which ushered in the Great Depression of the 1930s.

But the October 1929 stock market crash took place after the economy had already entered a recession, which began in August of 1929. The biggest one-day fall in stock prices in October 1987 did not happen during a recession, but while the economy was still growing. The recession didn’t start until almost three years later, in July of 1990.

Fight Back!: So are you saying that the stock market doesn’t really matter that much to the real economy that actually produces goods and services?

Suzuki: I wouldn’t say that. A continued fall in stock prices could affect the economy in at least three ways. First of all, almost all stocks are owned by the households in the top 20% of the income distribution. These households earn half of all income and do a lot of consumer spending that makes up two-thirds of the economy. If a big fall in stock prices leads these households to cut back on spending to save more, this would be a major drag on the economy.

Another way that stocks could impact the economy is through the housing market. Sales of new homes have fallen the last two months in a row, and rising interest rates will slow future sales. A big fall in stocks could hurt people’s ability to come up with down payments to buy a house, which could further slow the housing market. Large drops in housing construction helped to trigger both the 1990 and 2007 recessions.

Last, but not least, the high-income individuals who own most stocks are the same people who control large corporations. If they become more pessimistic because the stock market is tanking, this could lead to less corporate spending on structures and equipment. This is what led to the 2001 recession, when business investment in servers, routers, fiber optic cable, computers, etc. fell following the dot-com bust.

Fight Back!: So how worried are you that a continued drop in the stock market could lead to another depression?

Suzuki: What worries me more than the stock market is that in the 1930s, then-president Herbert Hoover and his Republican Congress and Wall Street cabinet followed a business-friendly policy that actually made the depression worse. The term “trickle-down” was actually first used in 1932 to describe these policies. The next recession could come with Trump in the White House and Republicans a major force in Congress, even if they lose their majorities in the 2018 midterm elections. The Trump and Republican tax cut is nothing but trickle-down. I fear that we could see a repeat of Hoover’s trickle-down economics that could help push the next recession into a depression.

#UnitedStates #US #PeoplesStruggles #recession #frso #economy #stockMarket

San José, CA – Today, Oct. 15, right-wing Republicans in the House of Representatives stopped the House Republican leadership from trying to pass a compromise measure to re-open the federal government and raise its debt ceiling. This marks another step towards the first U.S. debt crisis in history.

On Oct. 17, the federal government will not be able to borrow more money to pay its bills. The federal government will only be able to pay out what it collects in taxes, plus about $30 billion in cash that it has on hand. In the two weeks after that, the federal government will run short of money to pay all its bills, with the most likely date being Nov. 1, when $55 billion in Social Security benefits, Medicare payments, and military pay, benefits and retirement benefits are due.

From now through mid-November, the federal government will have to postpone payment on about $100 billion in payments if the debt ceiling is not raised. This comes to almost 8% of Gross Domestic Product (GDP, the standard measure of the size of the economy based on production of goods and services) on an annual basis, enough to throw the economy in a recession even worse than the one following the financial crisis in 2008.

Background to the crisis

The looming debt crisis has several roots. The first are the budget deficits of the federal government, where it spends more than it collects in taxes, so it has to borrow the difference by selling bonds. The federal government budget deficit ballooned to about $1.4 trillion (or $1400 billion), equal to 10% of GDP, in 2009 because the deep recession lowered tax revenues and the federal government increased spending to bail out Wall Street and stimulate the economy. Since then, a combination of higher tax revenues, spending cuts and economic growth have reduced the deficit to almost $600 billion, or about 4% of GDP in 2012, a decline of 60% in relation to the size of the economy.

The total amount of bonds that the U.S. government sells to pay for the budget deficit is the public debt, which is now $16.75 trillion ($16,750 billion). The federal government has a self-imposed limit on the public debt of $16.7 trillion, which means that the government can no longer borrow more money. The reported debt is slightly higher than the limit because the federal government has been shifting money around to avoid running out of cash for the last five months.

While there have been disputes over the debt ceiling in the past, they have been largely partisan affairs that did not come close to forcing the government to actually delay payment. But the recent rise of Tea Party Republicans means that the Republicans, especially in the House of Representatives, are controlled by right wingers who are more than willing to shut down the government and even force the government not to pay its bills in order to achieve their goal of ending Obama’s health care reform known as Obamacare.

What drives the Tea Party

Many Republican members of congress were denying the possibility of a partial shutdown of the federal government right up to the point that the government shut down. Their behavior is similar to their stance on climate change – just deny that it is happening so one doesn’t have to do anything.

Digging a little deeper, one sees that the government agencies that were most affected by the shutdown, such as the Department of Education, Housing and Urban Development (HUD), the Environmental Protection Agency (EPA) and the Department of Labor, are the programs most hated by the right wing.

There is also an extreme free-market logic among Tea Party Republicans that the government is bad for business and the economy and that a shutdown of the government will be good for business.

What is likely to happen

The world isn’t going to end on Oct. 17 if the debt ceiling is not raised. But the economic effects are already being felt, as the uncertainty of repayment of bonds after that date is causing the prices of bonds coming due soon to fall, which leads to higher interest rates. The interest rate on the shortest term U.S. bonds (called bills), which come due in 30 days, has now tripled and is higher than the interest rates on 60-day bills, which come due later.

While Democrats and the Obama administration are warning of the danger of default, which is what happens when the federal government does not repay its bonds or interest payment, it is hard to see how the government won’t give Wall Street what it wants. But there is chance that some bank or financial institution will find itself in a squeeze if the federal government doesn’t pay on time, triggering another financial crisis.

What is more likely is that the sudden drop in federal government spending will trigger a new recession. This could quickly feed upon itself in what economists call the ‘multiplier effect,’ where the individuals, businesses and institutions that aren’t being paid by the federal government then cut back their own purchases and payments, putting the economy into a downward spiral.

What a debt crisis would mean

If the House Republicans do manage to block any agreement to reopen the government and raise the debt ceiling, the self-inflicted crisis will mark another step in the decline of the U.S. as a world power. Ever since World War II, the U.S. government has been both a protector of Wall Street and big business and the head of worldwide empire of pro-U.S. governments that protect U.S. financial and business interests, backed by the U.S. military.

From an economic point of view, the end in 1971 of the post-World War II system of fixed exchange rates centered on the U.S. dollar, called Bretton Woods, was an early sign of the decline of the U.S. relative to the rising nations of Europe and Japan. This was followed by the OPEC oil boycott in 1973, and then the U.S. military defeat in Vietnam in 1975, showing the rise of the Third World.

Today the withdrawal of U.S. troops from Iraq and coming U.S. withdrawal from Afghanistan shows that the U.S., despite using hundreds of thousands of troops and spending trillions of dollars, is no longer to set up stable, pro-U.S. governments that can defend U.S. business interests. With the looming debt crisis, more and more governments around the world are losing faith in the economic power of the U.S. and the safety of U.S. government bonds. Foreign governments and investors now own more than $5.5 trillion of U.S. government bonds, and any sell-off in the bond market triggered by a debt crisis would quickly spread a financial crisis around the world.

But even if a financial crisis is avoided, a deep recession in the U.S. will also spread around the world. Europe’s economy is still in a depression with the euro-zone crisis and many economies in the Third World are slowing down already. Another worldwide recession, following so closely on the 2008-2009 so-called Great Depression, could again shake the very foundations of the world capitalist economy.

#SanJoséCA #capitalistCrisis #recession #RepublicanAgenda #TeaParty #governmentShutdown #DebtCeiling

Students and Youth Hit Hard

One of the groups hit hard by the economic crisis is college students and youth. The crisis led to class cuts and tuition hikes at public colleges and universities across the country. While the pace of budget cuts and tuition increases slowed with the economic expansion, they still continue today. One example is the growing threat to Historically Black Colleges and Universities (HBCU), many of which are seeing dramatic and dangerous drops in enrollments because of cuts in federal student loan programs.

Double Whammy

Youth who do manage to graduate from college, which is taking longer and becoming more expensive than ever, face a double whammy. On one hand the economic crisis sped up the restructuring of the labor market. Over the last 30 years millions of manufacturing jobs were automated away, off-shored by multinational corporations, and/or workers’ wages and benefits were cut. Now, government is one of the last remaining sectors with decent paying jobs, benefits and union representation. However, this sector has been hit harder by the Great Recession of 2009 than any other recession since the 1930s. Hundreds of thousands of local and state jobs are being lost, while government workers face wage and pension cuts and loss of union protection. Republican politicians are taking away hard-earned bargaining rights in states like Wisconsin and Michigan.

Restructuring Youth: Low-wage, Part-time and Temporary

In addition to the loss of jobs that pay a living wage and benefits, more and more permanent, full-time jobs are being replaced by temporary and part-time jobs. Today about half of all recent college graduates are either unemployed or underemployed, with part-time or temporary jobs, many of which don’t even require a college degree.

Skyrocketing Student Debt

There is an explosion of student loan debt, which totals as much as $1.2 trillion. Student loan debt is now the largest form of consumer (non-mortgage) debt, about 40% of the total. Caught between rising tuition and the cost of living on one hand and stagnant grants and wages, college students and their families have been borrowing more and more to pay for college. This student debt is a growing burden on youth, especially those who were not able to graduate or find a full-time, permanent, decent paying job.

Boom then Bust, Repeat

The boom and bust cycle under capitalism is not an accident – it is part and parcel of a capitalist economy. Wages are pushed down to grow profits, and this limits workers ability to spend. Then the profits are reinvested in expanding production, thereby increasing the ability to produce more, but the workers cannot buy all that they produce, and a periodic crisis of overproduction, or what we call recessions occur.

Crisis upon Crisis

On top of this, the build up in debt and deregulation and expansion of the financial sector following the end of the post-World War II economic boom in the 1970s led to growing financial crisis in the U.S. From the Third World debt crisis and Savings and Loan crisis in the 1980s to the Asian Economic Crisis of the 1990s, and most recently to the financial crisis in 2008, these crises have grown and become a greater and greater threat to the economy as a whole.

People Over Profits

The government is turning away from stimulating the economy to policies of more and more austerity – higher taxes on working people and cuts to programs that serve the people. The spending cuts are really felt at the state and local levels, hurting education funding from Head Start through university level. With financial regulation blocked by the power of Wall Street, it is more and more clear that the government, along with both political parties, are bought and paid for by the rich. They offer no real hope for working people and college-aged youth. Only a socialist economy, one based on people’s needs and not profit, can offer an alternative of expanding access and affordability to higher education, while creating jobs that pay a living wage.

Masao Suzuki teaches economics at a community college in California and is a member of the Freedom Road Socialist Organization (FRSO).

#SanJoséCA #crisisOfCapitalism #recession #PublicSchools #economy #corporateProfits #tuitionHikes

The U.S. economy is showing signs of stagnation – that is, slow economic growth combined with ongoing high unemployment – ever since the financial crisis and deep recession in 2008-2009. When economic stagnation first showed up in Europe in the 1980s, mainstream U.S. economists blamed the European social democratic policies of high taxation and extensive social welfare programs like universal health care. Then economic stagnation spread to Japan in the 1990s and again mainstream U.S. economists blamed the Japanese government policy of supporting certain industries.

Now the third center of world capitalism, the United States, has joined Europe and Japan. With unemployment still more than 8% almost three years after the official end of the recession, it would take about six more years at the current rate of job growth just to gain back the jobs lost during the last downturn. The U.S. economy has followed a much more free-market approach of deregulation of industry, cuts in social welfare programs and attacks on unions since the 1980s. But Wall Street bankers, freed from regulations dating back the Great Depression, let their greed run amuck, leading to a boom and then bust in the housing markets that ultimately led the biggest financial crisis in the United States since the Great Depression of the 1930s.

In a capitalist economy production of goods and services is done to make a profit. This drive for profits leads businesses to pay their workers less than the value of what the workers’ labor creates, which is what Karl Marx referred to as exploitation. This can be seen today in the United States as the purchasing power of wages has been flat while the value of what an average worker produces has been rising. This has led to record corporate profits, while more and more working people are living paycheck to paycheck and sinking into poverty.

At the same time, competition among businesses leads them to reinvest most of these profits into expanding their businesses and introducing new technology. This is what Marx called the accumulation of capital, which leads to the ability to produce more and more goods and services. But this ability to produce more comes into conflict with the fact that exploitation limits the ability of workers (who make up 90% of the population in the United States) to buy the goods and services that they have produced. The result is crisis of overproduction, or what are called recessions today.

During a recession, goods and services go unsold – not because they are not needed or desired, but because they cannot be sold at a profit. The most glaring example today is in the housing market, where there are a record number of homes standing empty at the same time as there are record numbers of homeless (counting not just those on the street, but including people living in cars and staying at friends and relatives).

This can explain the regular pattern of alternating periods of economic growth and recession, or what is called the business cycle. Here in the United States there have been 33 such cycles over the last 200 years.

For more than a hundred years, huge corporations have developed in more and more types of businesses, so that a small handful, or even just one, giant corporation can dominate an entire industry. What Marx called the concentration and centralization of capital can be seen in the recent takeover of more and more types of retail businesses such as office supply, bookstores and hardware stores by two or three companies.

These giant corporations can cut back on production to limit overproduction, but then end up with overcapacity, or the ability to produce more than they can produce and sell on the market for a profit. This overcapacity can be seen in many industries: car makers can produce more cars than can be sold, steel producers can produce more steel than there is a market for, etc.

With the ability to produce more than what can be sold, corporations are sitting on literally trillions of dollars of profits that are not being spent to expand business. This is what leads to stagnation: the lack of reinvestment of profits means slower economic growth and fewer jobs, i.e. the economic stagnation that we see today.

Neither the Republicans nor the Democrats offer a real solution to the economic woes for working people. The Republicans want to increase corporate profits by increasing the exploitation of workers using the methods of cutting pensions, smashing unions, limiting health care benefits and cutting unemployment insurance and other social safety net programs. In addition the Republicans would cut taxes and regulation on business to make them even more profitable. But this would only increase the contradiction between the limited purchasing power of workers and the ability of corporations to produce more, leading to another crisis of overproduction.

The Democrats would prefer to use the government to increase corporate profits through subsidies and loans for selective industries with new technology (like electric batteries and solar panels) or the health insurance industry (with the health care reform law). While the Democrats talk about helping out working people with cuts in payroll taxes and extending unemployment insurance, their support for balancing the budget will lead to more austerity: higher taxes and cuts to social programs, including the two biggest, Medicare and Social Security.

Only a socialist economy, where production is aimed at peoples’ needs, not for profit, can overcome the cycle of boom and bust and the economic stagnation that we face today. A socialist economy, with government and collective ownership of the means of production (and not just the extensive social welfare programs as seen in Europe), cannot be won at the ballot box, since both major parties are in favor of the 1% that benefits from capitalism. Only mass struggle can bring about the fundamental economic change that will benefit working people.

#UnitedStates #WallStreet #Socialism #crisisOfCapitalism #recession #Capitalism #republicanParty #democratParty

Republican presidential candidates have taken the free market view that the government is to blame for economic instability and have called for, for example, dismantling the Environmental Protection Agency (EPA) as a ‘job-killer.’ Unfortunately Democratic politicians from President Obama to California Governor Brown have also adopted this view of sacrificing the health and welfare of people in the interests of corporate profits.

These right-wing, free market views even go as far as trying to blame the boom and bust in housing prices on government-backed mortgage giants Fannie Mae and Freddie. In fact, the big boom in housing was driven by Wall Street and big banks that pushed risky and exotic mortgages from 2003 to 2007 while pushing Fannie and Freddie to the sidelines. The right wing also tries to put blame for the housing crisis on federal government efforts to increase homeownership among African Americans and other oppressed nationalities under the Democratic Clinton administration, when the big boom and bust came under Republican George Bush.

Backers of the free market view are calling for more austerity. Republican presidential candidates complain that the poor, working parents and seniors on Social Security often pay no income tax, while ignoring the payroll and sales taxes that lower income folks pay. Free marketers claim that extending unemployment insurance benefits causes unemployment by reducing people’s interest in finding a job, ignoring the fact that there are almost four people looking for a job for every job opening. They have also proposed at different times to do away with Social Security and Medicare and turning people’s retirement funds over to Wall Street and health care to private insurance companies.

Keynesian economists such as Nobel-prize winner Paul Krugman have argued that these policies of austerity are cruel and that the federal government should have spent even more, as the $800 billion economic stimulus under Obama barely offset the spending cuts and tax increases by state and local government, adding little stimulus to the economy. They correctly point out that the large U.S. government budget deficits have not increased interest rates, as the interest rate on long-term government bonds have dropped to the lowest levels in 70 years.

But the example of Japan shows that even massive government spending can fail to revive an economy. In the early 1990s the Japanese economy suffered a triple whammy of recession, a stock market crash and a bursting real estate bubble. The Japanese government borrowed and spent huge amounts, driving Japanese government debt from the lowest among the wealthier nations to the highest – it is now more than twice the size of the Japanese economy (in contrast, the U.S. government’s debt is still smaller than our economic production as measured by GDP). Nevertheless, the Japanese economy has remained in the doldrums, with only a strong export sector boosting the economy.

Marxist economics sees recession as neither caused by the government nor as curable by government spending. Rather, recessions are part and parcel of a capitalist economy where profit is the motive force. Businesses cut workers’ pay and benefits to increase their profits. But this limits their workers’ ability to buy back what they create. At the same time, these profits are reinvested in developing new technologies and expanding production. This clash – between limited ability to buy and growing ability to produce – leads to periodic crisis of overproduction, or what are called recessions.

Over the last 30 years a vast expansion of debt, especially credit cards and mortgages, has allowed workers to buy more and more despite having stagnant wages. At the same time it has been a profitable investment for capital that has had a hard time finding enough productive investments to turn a profit. But this pile of debt began to collapse with the financial crisis triggered by the collapse of the Wall Street investment bank three years ago.

Without more and more debt to stimulate the economy, it should be no surprise that the recovery from the last recession has been so weak. More than two years after the official end of the last recession, there are almost 7 million fewer jobs than before the recession started and many parts of the country are still mired in depression. More frequent recessions and quite likely worse ones are in the near future, as governments lose their will to bail out the economy and austerity measures cut spending.

The ultimate solution is that we need socialism, which includes an economy based on people’s needs, not profit. But in the meantime we also need to build a mass movement to defend the unions and social programs that have helped people raise their standard of living. Instead of cutting Medicare, we need a national health insurance program for all. Instead of cutting Social Security, we need to restore Social Security taxes on higher income individuals. Instead of closing schools and raising tuition at public colleges, the U.S. must get out of Iraq and Afghanistan.

#UnitedStates #EconomicCrisis #recession #doubleDipRecession

The U.S. economy continues to stagnate with almost no economic growth or job creation more than three years after the great financial crisis of 2008 and more than two years after the recession officially ended in 2009. The official unemployment rate is still over 9% nationally, and millions of workers who have stopped looking for work are not included in this count. Even worse, the Obama administration projects unemployment to stay above 8% for all of 2012, which would be four years of near double-digit unemployment.

The U.S. is not the first to face economic stagnation. In the 1980s, European unemployment rates were also near double-digit levels. U.S. economists blamed this on the European social-welfare state, with universal health insurance and unemployment insurance, early retirement and long paid maternity leaves. But here in the United States more than 50 million people have no health insurance at all, millions of unemployed have no benefits, the retirement age is rising and there is no mandatory paid maternity leave. Still, the U.S. economy stagnates.

In the 1990s, the Japanese economy entered what is now 20 years of stagnation, marked by deflation or falling prices. Deflation can poison an economy as prices and incomes fall, making it harder to pay off mortgages and other debts. As more and more loans go bad, the economy is dragged down even more. Again, U.S. economists blamed the Japanese Central Bank for not printing enough money to prevent deflation and stagnation. Here in the United States, the U.S. central bank, the Federal Reserve, has printed more than a trillion and a half dollars over the last three years, yet was able to stop the deflation in 2009. But still the U.S. economy stagnates.

The problem here in the United States (as well as Europe and Japan, which also have economies that are going from bad to worse) is not the limited social safety net or central bank policy. The problem is that our monopoly capitalist economy, dominated by a smaller and smaller number of gigantic corporation and Wall Street financial institutions, is dedicated to increasing profits at all costs. Over the last two years corporate profits have soared to record levels, while at the same time there are 7 million fewer people working than when the recession began in late 2007. These gigantic profits are not reinvested to create more jobs, but rather are flowing to the financial casino known as Wall Street for massive speculation.

Republicans are trying to use the continuing economic stagnation to try to eliminate what is left of the U.S. safety net. In Congress, Republicans have proposed to end Medicare and replace it with more expensive private health insurance. The leading Republican presidential candidate, Texas Governor Rick Perry, is attacking Social Security and wants retirees to depend on Wall Street. In states such as Wisconsin, Republicans have led the charge to chop pay, retirement, and collective bargaining rights of teachers and other government workers. They are also leading efforts in Arizona, Georgia and other states to scapegoat immigrants and pass racist laws targeting Chicanos and Latinos. These efforts are backed by the Koch oil billionaires and others who want corporations to be able to run amuck over working people and the environment.

The Democrats also have close ties with Wall Street, and spearheaded the bailout of big banks and corporations during the financial crisis. But to bring along their supporters among working people, African Americans, and other oppressed nationality communities, the Democrats have promoted programs that have been at best too little and too late and at worst crumbs compared to the hundreds of billions spent on corporate bailouts. While millions of home owners have been foreclosed and millions more have gone underwater – with their prices falling below their mortgages – the Obama Home Ownership Modification Program (HAMP) has only helped 63,000 severely underwater homeowners.

The latest Obama proposal for payroll tax cuts and extending unemployment insurance could add 2 million jobs if all of it is passed (there is almost zero chance of this happening with the Republican controlled Congress). With the labor force down by 7 million jobs since the recession started, this is still not enough to restore the economy to full employment.

Both the Republicans and the Democrats support continuing costly wars abroad. The wars in Iraq and Afghanistan have cost over a trillion dollars and counting, while the U.S. military is attacking Pakistan, Libya, and Yemen with bombs and drones. Trillions more have been spent on military bases, naval fleets and nuclear weapons so the United States is spending more than the rest of the world combined on the military. In the meantime college tuition is up, K-12 teachers are being laid off, roads and bridges are crumbling and even disaster relief is being questioned in Congress.

Both the Republicans and Democrats have committed themselves to cutting the federal budget deficit. But this is not going to help the economy; just look at what is happening in Europe where efforts by countries to cut spending and budget deficits are just leading to more and more unemployment and suffering by working people.

Neither the Republicans nor the Democrats will restore the economy to health. The Republican austerity proposals will only make the economy worse and deepen the suffering of working people. The Democratic practice of big bailouts for banks and corporate America combined with big announcements of programs to help working people that turn out to be little more than the status quo only serve to make the rich richer while trying to keep the poor and working people quiet.

Only a grassroots movement to fight back against austerity and for real relief for working people can protect our livelihoods and communities. We need a real government jobs programs that can put millions of unemployed to work like the WPA in the 1930s. We need to allow homeowners to reduce their mortgages and keep their homes through bankruptcy courts. We need to defend and expand Medicare, to provide universal health insurance for all and eliminate costly private health insurance. We need to defend Social Security and pensions so that working people can retire with peace of mind. Neither the Republicans nor Democrats will do the job if left in the clutches of Wall Street and billionaires. Only a massive fight back can force Congress and the administration to provide the jobs, education and services that working people need.

#UnitedStates #recession #doubleDipRecession

Even worse, the average number of hours worked decreased by one-tenth of an hour. While this is a small number, multiplied by millions of workers, it means of loss of wages equivalent to losing some 300,000 jobs.

The unemployment rate stayed the same in August as compared to July; at 9.1%. One reason for this was that there was a large increase in the numbers of part-time workers who could not find full-time work because of the bad economy. The number of part-time workers has almost doubled since the start of the recession, from 4.5 million in December 2007 to 8.7 million in August. A broader measure of unemployment, that includes these part-time workers as well as discouraged workers who have given up looking for work, actually ticked up from 16.1% in July to 16.2% in August.

There was also a big increase in the unemployment rate for African Americans of almost a whole percentage point. The African American unemployment now stands at 16.7%, more than twice as high as the rate for non-Hispanic whites, which is 7.2%.

The official unemployment rate only counts those who are out of work and looking. Over the last four years the broadest measure of employment, the percentage of adults that are working, dropped from 62.7% to 58.2% in August. This measure usually falls during a recession, but has continued to fall since the official end of the recession two years ago.

The job market is caught in a vise between businesses that are not hiring and government spending cuts that are leading to job losses. Over the last two years businesses have cranked up production to where it is almost back to pre-recession levels. They have done this will seven million fewer workers. With their labor costs down, profits are way up and corporations are sitting more than a trillion dollars in cash that they are not spending.

But businesses are not going to hire more unless there is a pickup in spending. Consumers are not spending more because of high unemployment that limits income. The most widespread type of household wealth, housing, has been hit hard by the fall in home prices because of rising forced sales. With the number of home buyers who are behind on the payments rising in the April to June period, it is likely that home prices still have a way to fall with more forced sales in the future.

Exports of goods and services to other countries had been a bright spot in the economy, as the falling value of the U.S. dollar makes U.S. exports cheaper. But the economic slowdown and growing financial crisis in Europe have cut into exports, with exports falling in June, the latest month for which data is available. Job in manufacturing, an industry that has a large export market, fell for the first time in almost a year in August, with a loss of 3,000 jobs.

At the same time governments are cutting jobs. There have been almost 300,000 government jobs lost so far this year. State and local governments, especially schools, have been hardest hit by the bust in the housing market, which has cut into property tax revenues. With the end of the federal stimulus moneys going to state and local governments, they have had to cut even more. The recent ‘deficit reduction’ agreement promises to cut federal spending and jobs even more.

Both the Federal Reserve and the Obama administration are likely to try to stimulate the economy. But the most likely result is more of the easy money and piecemeal federal programs which haven’t been enough to get the economy back on track. More dramatic measures, such as a federal jobs program and allowing home buyers to reduce the mortgages through bankruptcy are needed to create more jobs, reduce foreclosures and create the income and spending needed to get the economy growing again.

#SanJoséCA #recession #jobs #doubleDipRecession

Recently, a number of weak economic reports, including ones showing that production of goods and services and job creation had slowed this year have raised the chances that the economy would go into another downturn, or what is called a double-dip recession. Mainstream corporate economists, who are usually optimistic about the U.S. economy, have said that the chances of a double-dip are as high as 40%.

If the economy did go into another downturn, it could be much worse than the last downturn that bottomed out in 2009. While there is no financial bubble in the housing market and trillions of dollars of bad mortgages, there is a brewing financial crisis in Europe as country after country is losing its ability to borrow from wealthy investors. First Greece, then Ireland and Portugal, and now Spain and Italy, have had to turn to other European governments and the European Central Bank (ECB) to get help in borrowing more.

The U.S. unemployment rate is still over 9%, about twice the unemployment rate when the recession began in December 2007. Short-term interest rates have been cut to almost zero, leaving the U.S. Federal Reserve unable to lower interest rates to boost the economy through monetary policy. There is also almost no chance of more government spending, or stimulation through fiscal policy, with the Tea Party/Republican control of the House of Representatives and the Democratic leadership’s commitment to more spending cuts. Without government aid, the next downturn is more likely to follow the path of Great Depression of the 1930s, with a vicious cycle of job cuts leading to less spending leading to even more job cuts.

Another downturn in the economy would also be bad for corporate profits, which is why there was a drop the stock market on Aug. 8. Stocks around the world fell Aug. 8, with the broadest measure of the U.S. stock market, the S&P 500, falling almost 7%. Early in the morning of Aug. 9, in Asia, stock markets continued to fall, with the worst hit the South Korean stock exchange, down 8%.

The stock market fall is likely to speed up the trend of corporate layoffs. A number of large corporations, including banks such as HSBC, high-tech firms such as Cisco and Research In Motion (makers of the Blackberry), bankrupt retailers like Borders, and drug company Merck have already announced thousands of layoffs. More corporate layoffs will come as businesses try to maintain or even increase their profits in a slowing economy.

While the corporate-dominated mainstream media is full of headlines about the fall in the stock market, there are few headlines about the millions of Americans who have been out of work. Unless and until the federal government turns away from its current path of austerity and increasing the insecurity of working Americans, and starts to spend more to create jobs, the economy can continue to weaken.

#SanJoséCA #recession #doubleDipRecession #sp #StandardPoors #bonds