A new survey finds nearly half the households in America — 46% — report facing serious financial pain during the pandemic — a problem that is more acute in the four largest U.S. cities, and among Latino and Black households. The poll also says hundreds of billions in government stimulus and other support did not make a significant dent in their struggles.
“We’ve got to avoid a prolonged period of high levels of
unemployment, and it’s a very real prospect,” he said. “It is not at
all assured that we will get a return of tight labour markets even with
traditional macroeconomic policy being properly applied.”
The paper
continued: “This suggests that, even if a vaccine cures everyone in a year, the
COVID-19 crisis will leave its mark on the US economy for many years to come.”
Fear and uncertainty dominate Jackson Hole
central bankers’ meeting
31 August 2020
The annual Jackson Hole conclave of central bankers, which
concluded over the weekend, underscored the incapacity of global financial
authorities to devise any policies either to bring about economic growth or
counter the mounting contradictions in the financial system.
Reporting on the meeting, held in
virtual format this year because of the COVID-19 pandemic, the Financial
Times noted: “It was the head of Singapore’s monetary authority who
best summed up the biggest fear gripping the virtual Jackson Hole conference
this year.
“‘We’re not going back to the same world,’ Tharman
Shanmugaratnam warned.’”
The central initiative at the gathering was the decision by
the Fed’s key policy-making body to maintain interest rates at their ultra-low
levels for an indefinite period and keep pumping money into the financial
system.
The decision, announced by the Federal Open Market
Committee as the conclave opened and elaborated on in a keynote speech by Fed
Chair Jerome Powell, was in effect a guarantee to Wall Street that its demand
for “forward guidance”—lower interest rates for longer—would be met.
The Fed said it would no longer be guided by a 2 percent
inflation rate limit in determining its interest policy, but would instead
focus on an “average” rate of 2 percent, meaning that the cheap money regime
could continue even if prices rose above that level.
As for dealing with the slump in the global economy—the
most serious since the Great Depression—and combating the potential for further
storms in the financial system following the market meltdown in mid-March,
there were no answers, as underscored by the remarks of the Singapore finance
minister.
“We’ve got to avoid a prolonged period of high levels of
unemployment, and it’s a very real prospect,” he said. “It is not at all
assured that we will get a return of tight labour markets even with traditional
macroeconomic policy being properly applied.”
It was a significant comment because one of main themes in
remarks by central bank chiefs was that monetary policy alone would not be
sufficient to restore growth, and government intervention was needed to boost
the economy. But, as Shanmugaratnam noted, even if “properly applied,” there
were no guarantees of success.
According to the Financial
Times, the notion that central bankers “need to face the reality of
permanent upheaval and long-term economic damage” was the “main theme” of the
event.
One of the most frequently cited academic papers produced
for the meeting was prepared earlier this month by Colombia University academic
Laura Veldkamp on the long-term effects of the COVID-19 pandemic.
The paper said that the biggest economic effects of the
pandemic “could arise from changes in behaviour long after the immediate health
crisis is resolved.” A potential source of such a long-lived change was a shift
in the “perceived probability of an extreme, negative shock in the future,” and
that “long-run cost for the US economy from this channel is many times higher
than the estimates of the short-run losses in output.”
The paper continued: “This suggests that, even if a vaccine
cures everyone in a year, the COVID-19 crisis will leave its mark on the US
economy for many years to come.”
In other words, the pandemic was not only a trigger event,
acting on the contradictions that had built up in the economy and financial
system, but a transformative one as well.
With the Fed now having formally committed itself to the
endless supply of cheap money to Wall Street, attention will turn to the
European Central Bank (ECB), which is also conducting a strategic policy
review, to see whether it goes down the same road.
While the governing council, under the presidency of
Christine Lagarde, may be inclined to move in the same direction as the Fed, it
would face certain opposition from Germany’s Bundesbank, which has expressed
opposition to the easing of monetary policy.
A member of the governing council told
the Financial Times, “we will look at it,” but the Bundesbank
would be “very nervous” about it.
“We are not out of firepower by any means, and to be
honest, it looks from today’s vantage point that we were too cautious about our
remaining firepower pre-COVID,” he said, adding that there are times when we
“need to go big and go fast.”
The actions of the Fed have done nothing to boost the real
economy, as an increasing number of companies announce that temporary layoffs
will be made permanent.
The Wall Street Journal reported
Saturday that a survey conducted by Randstad RiseSmart found that “nearly half
of US employers that had furloughed or laid off staff because of COVID-19 are
considering additional workplace cuts in the next 12 months.”
This indicates that the pandemic has been a trigger for a
major restructuring of employment conditions.
The effects of the Fed’s policies and the further monetary
easing to come are focused on the stock market, with Wall Street indexes rising
to the record levels they achieved in February. The main beneficiaries have
been the high tech companies—Apple, Microsoft, Alphabet (the owner of Google)
and Facebook—which together comprise more than a fifth of the Nasdaq index.
The extent of their rise and growing financial and monopoly
power is indicated by the results of an analysis carried out by Bank of America
Global Research, reported by the business channel CNBC. It found that the
market capitalization of the major US tech firms, now standing at $9.1
trillion, was greater than the market capitalization of the entire European
market, including the UK and Switzerland, at $8.9 trillion. In an indication of the
massive shift that has taken place, the research note pointed out that in 2007,
total European market capitalization was four times that of US technology
stocks.
Josh Hawley: GOP Must Defend Middle Class Americans Against ‘Concentrated
Corporate Power,’ Tech Billionaires
JOHN BINDER
The
Republican Party must defend America’s working and middle class against
“concentrated corporate power” and the monopolization of entire sectors of the
United States’ economy, Sen. Josh Hawley (R-MO) says.
In an interview
on The Realignment podcast, Hawley said that “long gone are
the days where” American workers can depend on big business to look out for
their needs and the needs of their communities.
Instead, Hawley
explained that increasing “concentrated corporate power” of whole sectors of
the American economy — specifically among Silicon Valley’s giant tech
conglomerates — is at the expense of working and middle class Americans.
“One of the things
Republicans need to recover today is a defense of an open, free-market, of a
fair healthy competing market and the length between that and Democratic
citizenship,” Hawley said, and continued:
At the end of the day,
we are trying to support and sustain here a great democracy. We’re not trying
to make a select group of people rich. They’ve already done that. The tech
billionaires are already billionaires, they don’t need any more help from
government. I’m not interested in trying to help them further. I’m interested
in trying to help sustain the great middle of this country that makes our
democracy run and that’s the most important challenge of this day.
“You have these
businesses who for years now have said ‘Well, we’re based in the United States,
but we’re not actually an American company, we’re a global company,'” Hawley
said. “And you know, what has driven profits for some of our biggest
multinational corporations? It’s been … moving jobs overseas where it’s cheaper
… moving your profits out of this country so you don’t have to pay any taxes.”
“I think that we have
here at the same time that our economy has become more concentrated, we have
bigger and bigger corporations that control more and more of our key sectors,
those same corporations see themselves as less and less American and frankly
they are less committed to American workers and American communities,” Hawley
continued. “That’s turned out to be a problem which is one of the reasons we need
to restore good, healthy, robust competition in this country that’s going to
push up wages, that’s going to bring jobs back to the middle parts of this
country, and most importantly, to the middle and working class of this
country.”
While multinational corporations
monopolize industries, Hawley said the GOP must defend working and middle class
Americans and that big business interests should not come before the needs of
American communities:
A free market is one
where you can enter it, where there are new ideas, and also by the way, where
people can start a small family business, you shouldn’t have to be gigantic in
order to succeed in this country. Most people don’t want to start a tech
company. [Americans] maybe want to work in their family’s business, which
may be some corner shop in a small town … they want to be able to make a
living and then give that to their kids or give their kids an option to do
that. [Emphasis added]
The problem with
corporate concentration is that it tends to kill all of that. The worst thing
about corporate concentration is that it inevitably believes to a partnership
with big government. Big business and big government always get together,
always. And that is exactly what has happened now with the tech sector, for
instance, and arguably many other sectors where you have this alliance between
big government and big business … whatever you call it, it’s a problem and it’s
something we need to address. [Emphasis added]
Hawley blasted the free
trade-at-all-costs doctrine that has dominated the Republican and Democrat
Party establishments for decades, crediting the globalist economic model with
hollowing “out entire industries, entire supply chains” and sending them to
China, among other countries.
“The thing is in this
country is that not only do we not make very much stuff anymore, we don’t even
make the machines that make the stuff,” Hawley said. “The entire supply chain
up and down has gone overseas, and a lot of it to China, and this is a result
of policies over some decades now.”
As Breitbart News
reported, Hawley detailed in the interview
how Republicans like former President George H.W. Bush’s ‘New World Order’
agenda and Democrats have helped to create a corporatist economy that
disproportionately benefits the nation’s richest executives and donor class.
The billionaire class,
the top 0.01 percent of earners, has enjoyed more than 15 times as
much wage growth as the bottom 90 percent since 1979. That economy has been
reinforced with federal rules that largely benefits the wealthiest of
wealthiest earners. A study released last month
revealed that the richest Americans are, in fact, paying a lower tax rate than
all other Americans.
John Binder is a
reporter for Breitbart News. Follow him on Twitter at @JxhnBinder.
Japan’s Economy Shrank 28% in Second Quarter, Worse Than Earlier Estimate
TOKYO (AP) — Japan’s economy shrank at a record, even worse rate in the April-June quarter than initially estimated.
The Cabinet Office said Tuesday Japan’s seasonally adjusted real gross domestic product contracted at an annualized rate of 28.1 percent, worse than the 27.8 percent figure given last month.
The coronavirus pandemic, which has people staying home, restaurants and stores empty or closing, and travel and tourism nose-diving, has hurt all the world’s economies and many companies. But it has slammed Japan’s export-reliant economy.
Restoring growth will be a priority as the country prepares to choose a new leader to replace Prime Minister Shinzo Abe, who is resigning for health reasons. A vote among governing party members is expected next week.
Other data released Tuesday showed cash earnings improving somewhat, and consumer spending and other business activity is expected to rebound following the sharp drops as the country sought to bring the coronavirus pandemic under control.
“However, high-frequency data show that growth is struggling to gain pace, suggesting a very gradual and protracted recovery after the initial bounce. The near-term outlook therefore remains challenging,” Oxford Economics said in a commentary.
Quarter-on-quarter, the economy contracted 7.9 percent, according to the revised figures, down from 7.8 percent in the preliminary data.
The annual rate shows what the number would have been if continued for a year.
The Cabinet Office said the government began keeping comparable records in 1980. The previous worst contraction, a 17.8 percent drop, was in the first quarter of 2009 during the global financial crisis. But anecdotally the latest drop is considered the worst since World War II.
Japan had already slipped into recession in the first quarter of this year, contracting by an annualized 2.3 percent. It shrank 7.0 percent in the final quarter of last year. Recession is generally defined as two consecutive quarters of contraction. Growth was flat in July-September of last year.
Domestic demand contracted even worse in this year’s second quarter, as private investment fell. Public demand, driven by government spending, also fared worse than thought earlier.
Abe has centered his “Abenomics” policies around keeping the economy going through super-easy lending and deregulation. The approach relied mostly on monetary easing by the central bank and helped to end years of deflation. But it never attained the sustained growth rates Abe had targeted.
All of the candidates to replace him are expected to keep most of those policies in place.
___
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
Trump strategically stretches truth to
manipulate media, former adviser says
President Trump
routinely, strategically exaggerates his achievements and stretches the truth
to manipulate the media, according to a former adviser.
Some examples of
Trump's intentional exaggerations: inflating the
GDP growth numbers in 2018, overstating the magnitude of drug price declines under his watch,
falsely suggesting that all Democrats want to outlaw private health insurance,
and claiming that he's the best president ever for African Americans.
“[Trump] began with a
now-familiar strategy for getting the press to cover a new fact, which is to
exaggerate it so that the press might enjoy correcting him and unwittingly
disseminate the intended finding,” said Casey Mulligan, who served as the chief
economist of Trump's Council of Economic Advisers from 2018 to 2019.
“The president’s gamble
is that voters aware of his successes on substance will tolerate his
eccentricities and improprieties in form,” said Mulligan, who lays out the case
in detail in his forthcoming tell-all book, You’re Hired!: Untold
Successes and Failures of a Populist President.
One part of Trump’s
tenure that he’s particularly proud of is economic growth. The economy had
grown 3.1% over the four quarters of 2018, which had not happened in one
calendar year since 2005.
Although having
the highest
economic growth rate in 14 years based on the annual calendar was
significant, Mulligan said, Trump nevertheless complained that the
accomplishment was “not getting fair coverage.” Trump decided to put a tweet
out to get more attention.
“POTUS asked whether
the tweet should say that it was the fastest growth in 20 years. Or 50? What would
be the sweet exaggeration spot that would get media attention?” Trump said in a
private conversation with his economic advisers in 2019, according to
Mulligan’s book.
Trump went on to cite
the exaggerated GDP growth
numbers during some Trump rallies, Mulligan said.
Mulligan explained in
the book that, on many occasions, Trump would first report or tweet the numbers
given to him by advisers with “100 percent precision.” Later, though, he would
embellish the claims after consulting with his communications team, primarily
social media chief Dan Scavino and senior adviser and speechwriter Stephen
Miller, gauging “whether the coverage needed exaggeration."
When it came to the
Trump administration’s success in reducing the cost of prescription drugs in
2018, once again, the president started off quoting accurate numbers but then
slipped into exaggerations when insufficient attention was given to the
accomplishment, according to Mulligan.
Initially, Trump said drug prices in
2018 had dropped for “the first time in nearly half a century.” This was
accurate.
Just 12 days after the
new drug price data had been released, however, Trump was frustrated that the
press were not talking about it and began exaggerating during a White House
Cabinet meeting at which the press were present, claiming that drug prices had
declined for the “first time in over 50 years.” An hour later, at another
televised Cabinet meeting, according to Mulligan’s book, Trump said,
“Prescription drugs, for the first time in the history of our country, have
gone down in 2018." Trump said the press didn't want to report his
administration's success because they didn't want to give him the satisfaction.
The president, Mulligan
said, is known not just for exaggerating the facts on his own successes from
time to time but also, on occasion, for doing so to highlight his opponents'
weaknesses.
According to Mulligan’s
book, in fall 2018, on the recommendation of Mulligan and advisers such as
Miller, Trump began telling the public that Democrats' "Medicare for
all" plan would be “outlawing the ability of Americans to enroll in
private and employer-based plans.” This messaging on the proposed healthcare
plan was meant to highlight the negative elements of socialism, touted by some
Democrats such as 2020 presidential contender Bernie Sanders.
This was accurate.
Sanders's Medicare for All Act, for example, would have banned private
insurance.
Later, though, Trump
would go on to say that “Democrats want to outlaw private health plans,” which
is an accurate description of only some Democrats, the 141 Democratic members of
the 115th Congress who supported "Medicare for all" bills. Finally,
Trump said, “the Democrats want to outlaw private health
plans” (emphasis added), which is not accurate since many Democrats do not
support "Medicare for all" and thereby do not want to outlaw private
health insurance.
Trump saying “the
Democrats,” indicating all Democrats want to outlaw private health insurance,
enraged Democratic Senate Minority Leader Chuck Schumer, who doesn’t support
"Medicare for all" and bashed Trump for the
inaccuracy.
Through a series of
exaggerations, Mulligan said, Trump had successfully informed the public that
"Medicare for all" would take private health insurance away from
millions of people.
Within the current
context of the race riots occurring nationwide, Mulligan said Trump’s claim
that he’s the best president for African Americans is “probably not accurate.”
However, Mulligan added that Trump saying this exaggeration gets newspapers
such as the Washington Post to do a fact check on the claim because
it's so outlandish. Such fact checks then unintentionally inform people about
the positive steps Trump has taken to help the black community.
“If he hadn't made that
claim, the Washington Post would have never done any analysis
of Trump policies that are good for African Americans. Mission accomplished,
right?” said Mulligan.
“He manipulates the
fact checkers pretty easily,” added Mulligan.
An
Illustrated History of Government Agencies Twisting the Truth to Align With
White House Misinformation
When
Trump pushes outlandish misinformation, his federal agencies have turned it
into official guidance and policy. Some have later had to reverse themselves.
by Eric
Umansky June 22, 5:28 p.m. EDT
TRUMP
ADMINISTRATION
The 45th President and His Administration
It has become a familiar pattern: President Donald Trump says
something that doesn’t line up with the facts held by scientists and other
experts at government agencies. Then, instead of pushing back, federal
officials scramble to reconcile the fiction with their own public statements.
It happened in March, when Trump pushed his opinion that
antimalarial drugs could treat COVID-19. The Centers for Disease Control and
Prevention issued an unusual directive that lent credence to the president’s
perspective: “Although optimal dosing and duration of hydroxychloroquine for
treatment of COVID-19 are unknown, some U.S. clinicians have reported
anecdotally” on specific dosages that the CDC then lists. The CDC’s language —
which the agency later retracted — shocked experts, who said the drug needed to
be treated with caution. The CDC told Reuters the agency had prepared the
guidance at the behest of the White House.
Perhaps the best known example of an agency twisting itself
into a pretzel stems from “Sharpiegate.” After the National Weather Service’s
Birmingham, Alabama, office contradicted Trump’s Sharpie fable that Hurricane
Dorian threatened the state, the agency overseeing the office put out a
statement backing the president over the scientists. Emails obtained by
BuzzFeed and The Washington Post showed just how the episode roiled the agency.
“You have no idea how hard I’m fighting to keep politics out of science,” one
official wrote. Another email simply had one word: “HELP!!!”
On the same day last week, two separate agencies cut through
the White House influence with their own factual conclusions.
The Food and Drug Administration announced last Monday that
it was revoking emergency approval of the malaria drugs, saying that the dosing
regimens promoted are “unlikely to produce an antiviral effect” and that their
risks — which include potentially fatal cardiac side effects — outweigh the
possible benefits.
Also that day, an independent panel investigating Sharpiegate
on behalf of the National Oceanic and Atmospheric Administration found that top
officials — including acting chief Neil Jacobs — violated the policy that
forbids political interference with NOAA’s scientific findings. Meanwhile,
Trump nominated Jacobs to permanently lead the agency in December.
ProPublica catalogued other instances in which government
entities have changed language or made other moves buttressing the White
House’s unsupported assertions.
“Our Stockpile”
The morning after Trump’s son-in-law Jared Kushner asserted
that the national stockpile is “our stockpile” and not for states, the
government changed the wording on the stockpile’s website.
Before Kushner’s comments, it said the “stockpile ensures
that the right medicines and supplies get to those who need them most.”
That became: The stockpile’s “role is to supplement state and
local supplies,” and “many states have products stockpiled, as well.”
A government spokesman said the update had been in the works
for a week before Kushner’s comments. The spokesperson did not allow their name
to be used.
“No Proof of Anything”
In another instance, after Trump warned in a tweet of
“unknown Middle Easterners” crossing the border from Mexico — a “National
Emergy [sic]” — the Department of Homeland Security released figures to support
the claim. Upon inspection, it became clear the figures did nothing of the
sort.
A few days later, the president backed off his claim of
suspicious Middle Easterners crossing the border. “There’s no proof of
anything,” Trump said, “but there could very well be.”
Agencies’ attempts to bolster the White House haven’t always
borne fruit. In late 2018, Trump again warned about dangers at the Mexican
border. “Women are tied up, they’re bound, duct tape put around their faces,
around their mouths, in many cases they can’t even breathe,” Trump said.
“They’re put in the backs of cars or vans or trucks.”
It wasn’t at all clear what Trump was referring to, but a top
Border Patrol official tried to be of assistance. He emailed agents asking them
to pass along any such evidence. (The email was obtained by a Vox reporter,
Dara Lind, who’s now at ProPublica.)
The Border Patrol never followed up with examples.
The Inaugural Example
And then there was Trump’s first day in office. He publicly
complained about what he said were misleading photographs comparing the size of
the audience at his inauguration with President Barack Obama’s, and then-White
House Spokesman Sean Spicer falsely claimed a record crowd size.
The Post soon reported the president called the head of the
National Park Service to demand it release photos that would counter what he
saw as the misleading comparisons. Sarah Huckabee Sanders, the deputy
spokesperson, said the call was simply a reflection of a president who is “so
accessible, and constantly in touch.”
A government investigation later found that after the call a
National Park Service photographer cropped photos to take out empty areas. As
the report noted, “He selected a number of photos, based on his professional
judgment, that concentrated on the area of the national mall where most of the
crowd was standing.”
The report noted that no one ordered him to do so.
The 10% Tax Cut for the Middle Class
Congress has also gotten involved. Right before the 2018
elections, Trump made unplanned comments that middle-class Americans would be
getting a 10% tax cut. “We’ll be putting it in next week,” Trump said at a
campaign rally in Houston. Nobody in the White House or Capitol Hill had even
heard Trump talk about it before.
Republicans responded by saying they were working on rolling
out something — reportedly a nonbinding resolution — “over the coming weeks,”
as one congressman put it.
The cuts never happened.
Why Our Economy May Be Headed for a Decade of Depression
The worst is yet to come?
In September 2006,
Nouriel Roubini told the International Monetary Fund what it didn’t want to
hear. Standing before an audience of economists at the organization’s
headquarters, the New York University professor warned that the U.S. housing market
would soon collapse — and, quite possibly, bring the global financial system
down with it. Real-estate values had been propped up by unsustainably shady
lending practices, Roubini explained. Once those prices came back to earth,
millions of underwater homeowners would default on their mortgages, trillions
of dollars worth of mortgage-backed securities would unravel, and hedge funds,
investment banks, and lenders like Fannie Mae and Freddie Mac could sink into insolvency.
At the time, the
global economy had just recorded its fastest half-decade of growth in 30 years.
And Nouriel Roubini was just some obscure academic. Thus, in the IMF’s cozy
confines, his remarks roused less alarm over America’s housing bubble than
concern for the professor’s psychological well-being.
Of course, the
ensuing two years turned Roubini’s prophecy into history, and the little-known
scholar of emerging markets into a Wall Street celebrity.
A decade later, “Dr. Doom” is a bear once again. While many
investors bet on a “V-shaped recovery,” Roubini is staking his reputation
on an L-shaped depression. The economist
(and host of a biweekly economic news broadcast) does expect
things to get better before they get worse: He foresees a slow, lackluster
(i.e., “U-shaped”) economic rebound in the pandemic’s immediate aftermath. But
he insists that this recovery will quickly collapse beneath the weight of the
global economy’s accumulated debts. Specifically, Roubini argues that the
massive private debts accrued during both the 2008 crash and COVID-19 crisis
will durably depress consumption and weaken the short-lived recovery.
Meanwhile, the aging of populations across the West will further undermine
growth while increasing the fiscal burdens of states already saddled with
hazardous debt loads. Although deficit spending is necessary in the present
crisis, and will appear benign at the onset of recovery, it is laying the
kindling for an inflationary conflagration by mid-decade. As the deepening
geopolitical rift between the United States and China triggers a wave of
deglobalization, negative supply shocks akin those of the 1970s are going to
raise the cost of real resources, even as hyperexploited workers suffer
perpetual wage and benefit declines. Prices will rise, but growth will peter
out, since ordinary people will be forced to pare back their consumption more
and more. Stagflation will beget depression. And through it all, humanity will
be beset by unnatural disasters, from extreme weather events wrought by
man-made climate change to pandemics induced by our disruption of natural
ecosystems.
Roubini allows that,
after a decade of misery, we may get around to developing a “more inclusive,
cooperative, and stable international order.” But, he hastens to add, “any
happy ending assumes that we find a way to survive” the hard times to come.
Intelligencer
recently spoke with Roubini about our impending doom.
You predict that the
coronavirus recession will be followed by a lackluster recovery and global
depression. The financial markets ostensibly see a much brighter
future. What are they missing and why?
Well, first of all,
my prediction is not for 2020. It’s a prediction that these ten major forces will, by the
middle of the coming decade, lead us into a “Greater Depression.” Markets, of
course, have a shorter horizon. In the short run, I expect a U-shaped recovery
while the markets seem to be pricing in a V-shape recovery.
Of course the markets
are going higher because there’s a massive monetary stimulus, there’s a massive
fiscal stimulus. People expect that the news about the contagion will improve,
and that there’s going to be a vaccine at some point down the line. And there
is an element “FOMO” [fear of missing out]; there are millions of new online
accounts — unemployed people sitting at home doing day-trading — and they’re
essentially playing the market based on pure sentiment. My view is that there’s
going to be a meaningful correction once people realize this is going to be a
U-shaped recovery. If you listen carefully to what Fed officials are saying —
or even what JPMorgan and Goldman Sachs are saying — initially they were all in
the V camp, but now they’re all saying, well, maybe it’s going to be more of a
U. The consensus is moving in a different direction.
Your prediction of a
weak recovery seems predicated on there being a persistent shortfall in
consumer demand due to income lost during the pandemic. A bullish investor
might counter that the Cares Act has left the bulk of laid-off workers with as
much — if not more — income than they had been earning at their former jobs.
Meanwhile, white-collar workers who’ve remained employed are typically earning
as much as they used to, but spending far less. Together, this might augur a
surge in post-pandemic spending that powers a V-shaped recovery. What does the
bullish story get wrong?
Yes, there are
unemployment benefits. And some unemployed people may be making more money than
when they were working. But those unemployment benefits are going to run out in July. The consensus
says the unemployment rate is headed to 25 percent. Maybe we get lucky. Maybe
there’s an early recovery, and it only goes to 16 percent. Either way, tons of
people are going to lose unemployment benefits in July. And if they’re rehired,
it’s not going to be like before — formal employment, full benefits. You want
to come back to work at my restaurant? Tough luck. I can hire you only on an
hourly basis with no benefits and a low wage. That’s what every business is
going to be offering. Meanwhile, many, many people are going to be without jobs
of any kind. It took us ten years — between 2009 and 2019 — to create 22
million jobs. And we’ve lost 30 million jobs in two months.
So when unemployment
benefits expire, lots of people aren’t going to have any income. Those who do
get jobs are going to work under more miserable conditions than before. And
people, even middle-income people, given the shock that has just occurred —
which could happen again in the summer, could happen again in the winter — you
are going to want more precautionary savings. You are going to cut back on
discretionary spending. Your credit score is going to be worse. Are you going
to go buy a home? Are you gonna buy a car? Are you going to dine out? In
Germany and China, they already reopened all the stores a month ago. You look
at any survey, the restaurants are totally empty. Almost nobody’s buying
anything. Everybody’s worried and cautious. And this is in Germany, where unemployment
is up by only one percent. Forty percent of Americans have less than $400 in liquid cash saved for an emergency. You think they are going to spend?
Graphic: Financial Times
Graphic: Financial Times
You’re going to start
having food riots soon enough. Look at the luxury stores in New York. They’ve
either boarded them up or emptied their shelves, because they’re worried people
are going to steal the Chanel bags. The few stores that are open, like my Whole
Foods, have security guards both inside and outside. We are one step away from
food riots. There are lines three miles long at food banks. That’s what’s
happening in America. You’re telling me everything’s going to become normal in
three months? That’s lunacy.
Your projection of a
“Greater Depression” is premised on deglobalization sparking negative supply
shocks. And that prediction of deglobalization is itself rooted in the notion
that the U.S. and China are locked in a so-called Thucydides trap, in which the geopolitical tensions between a dominant and rising
power will overwhelm mutual financial self-interest. But given the deep
interconnections between the American and Chinese economies — and warm
relations between much of the U.S. and Chinese financial elite — isn’t it
possible that class solidarity will take precedence over Great Power rivalry? In other
words, don’t the most powerful people in both countries understand they have a
lot to lose financially and economically from decoupling? And if so, why shouldn’t
we see the uptick in jingoistic
rhetoric on both sides as mere
posturing for a domestic audience?
First of all, my
argument for why inflation will eventually come back is not just based on
U.S.-China relations. I actually have 14 separate arguments for why this will
happen. That said, everybody agrees that there is the beginning of a Cold War
between the U.S. and China. I was in Beijing in November of 2015, with a
delegation that met with Xi Jinping in the Great Hall of the People. And he
spent the first 15 minutes of his remarks speaking, unprompted, about why the
U.S. and China will not get caught in a Thucydides trap, and why there will
actually be a peaceful rise of China.
Since then, Trump got
elected. Now, we have a full-scale trade war, technology war, financial war,
monetary war, technology, information, data, investment, pretty much anything
across the board. Look at tech — there is complete decoupling. They just
decided Huawei isn’t going to have any access to U.S. semiconductors and
technology. We’re imposing total restrictions on the transfer of technology
from the U.S. to China and China to the U.S. And if the United States argues
that 5G or Huawei is a backdoor to the Chinese government, the tech war will
become a trade war. Because tomorrow, every piece of consumer electronics, even
your lowly coffee machine or microwave or toaster, is going to have a 5G chip.
That’s what the internet of things is about. If the Chinese can listen to you
through your smartphone, they can listen to you through your toaster. Once we
declare that 5G is going to allow China to listen to our communication, we will
also have to ban all household electronics made in China. So, the decoupling is
happening. We’re going to have a “splinternet.” It’s only a matter of how much
and how fast.
And there is going to
be a cold war between the U.S. and China. Even the foreign policy Establishment
— Democrats and Republicans — that had been in favor of better relations with
China has become skeptical in the last few years. They say, “You know, we
thought that China was going to become more open if we let them into the WTO.
We thought they’d become less authoritarian.” Instead, under Xi Jinping, China
has become more state capitalist, more authoritarian, and instead of biding its
time and hiding its strength, like Deng Xiaoping wanted it to do, it’s flexing
its geopolitical muscle. And the U.S., rightly or wrongly, feels threatened.
I’m not making a normative statement. I’m just saying, as a matter of fact, we
are in a Thucydides trap. The only debate is about whether there will be a cold
war or a hot one. Historically, these things have led to a hot war in 12 out of
16 episodes in 2,000 years of history. So we’ll be lucky if we just get a cold
war.
Some Trumpian
nationalists and labor-aligned progressives might see an upside in your
prediction that America is going to bring manufacturing back “onshore.” But you
insist that ordinary Americans will suffer from the downsides of reshoring
(higher consumer prices) without enjoying the ostensible benefits (more job
opportunities and higher wages). In your telling, onshoring won’t actually
bring back jobs, only accelerate automation. And then, again with automation,
you insist that Americans will suffer from the downside (unemployment, lower
wages from competition with robots) but enjoy none of the upside from the
productivity gains that robotization will ostensibly produce. So, what do you
say to someone who looks at your forecast and decides that you are indeed “Dr.
Doom” — not a realist, as you claim to be, but a pessimist, who ignores the
bright side of every subject?
When you reshore, you
are moving production from regions of the world like China, and other parts of
Asia, that have low labor costs, to parts of the world like the U.S. and Europe
that have higher labor costs. That is a fact. How is the corporate sector going
respond to that? It’s going to respond by replacing labor with robots,
automation, and AI.
I was recently in
South Korea. I met the head of Hyundai, the third-largest automaker in the
world. He told me that tomorrow, they could convert their factories to run with
all robots and no workers. Why don’t they do it? Because they have unions that
are powerful. In Korea, you cannot fire these workers, they have lifetime
employment.
But suppose you take
production from a labor-intensive factory in China — in any industry — and move
it into a brand-new factory in the United States. You don’t have any legacy
workers, any entrenched union. You are going to design that factory to use as
few workers as you can. Any new factory in the U.S. is going to be
capital-intensive and labor-saving. It’s been happening for the last ten years
and it’s going to happen more when we reshore. So reshoring means increasing
production in the United States but not increasing employment. Yes, there will
be productivity increases. And the profits of those firms that relocate
production may be slightly higher than they were in China (though that isn’t
certain since automation requires a lot of expensive capital investment).
But you’re not going
to get many jobs. The factory of the future is going to be one person manning
1,000 robots and a second person cleaning the floor. And eventually the guy
cleaning the floor is going to be replaced by a Roomba because a Roomba doesn’t
ask for benefits or bathroom breaks or get sick and can work 24-7.
The fundamental
problem today is that people think there is a correlation between what’s good
for Wall Street and what’s good for Main Street. That wasn’t even true during
the global financial crisis when we were saying, “We’ve got to bail out Wall
Street because if we don’t, Main Street is going to collapse.” How did Wall
Street react to the crisis? They fired workers. And when they rehired them,
they were all gig workers, contractors, freelancers, and so on. That’s what
happened last time. This time is going to be more of the same. Thirty-five to
40 million people have already been fired. When they start slowly rehiring some
of them (not all
of them), those workers are going to get part-time jobs, without benefits,
without high wages. That’s the only way for the corporates to survive. Because
they’re so highly leveraged today, they’re going to need to cut costs, and the
first cost you cut is labor. But of course, your labor cost is my consumption.
So in an equilibrium where everyone’s slashing labor costs, households are
going to have less income. And they’re going to save more to protect themselves
from another coronavirus crisis. And so consumption is going to be weak. That’s
why you get the U-shaped recovery.
There’s a conflict
between workers and capital. For a decade, workers have been screwed. Now,
they’re going to be screwed more. There’s a conflict between small business and
large business.
Millions of these
small businesses are going to go bankrupt. Half of the restaurants in New York
are never going to reopen. How can they survive? They have such tiny margins.
Who’s going to survive? The big chains. Retailers. Fast food. The small
businesses are going to disappear in the post-coronavirus economy. So there is
a fundamental conflict between Wall Street (big banks and big firms) and Main
Street (workers and small businesses). And Wall Street is going to win.
Clearly, you’re
bearish on the potential of existing governments intervening in that conflict
on Main Street’s behalf. But if we made you dictator of the United States
tomorrow, what policies would you enact to strengthen labor, and avert (or at
least mitigate) the Greater Depression?
The market, as
currently ordered, is going to make capital stronger and labor weaker. So, to
change this, you need to invest in your workers. Give them education, a social
safety net — so if they lose their jobs to an economic or technological shock,
they get job training, unemployment benefits, social welfare, health care for
free. Otherwise, the trends of the market are going to imply more income and
wealth inequality. There’s a lot we can do to rebalance it. But I don’t think
it’s going to happen anytime soon. If Bernie Sanders had become
president, maybe we
could’ve had policies of that sort. Of course, Bernie Sanders is to the right
of the CDU party in Germany. I mean, Angela Merkel is to the left of Bernie
Sanders. Boris Johnson is to the left of Bernie Sanders, in terms of social
democratic politics. Only by U.S. standards does Bernie Sanders look like a
Bolshevik.
In Germany, the
unemployment rate has gone up by one percent. In the U.S., the unemployment
rate has gone from 4 percent to 20 percent (correctly measured) in two months.
We lost 30 million jobs. Germany lost 200,000. Why is that the case? You have
different economic institutions. Workers sit on the boards of German companies.
So you share the costs of the shock between the workers, the firms, and the
government.
In 2009, you argued that if deficit spending to combat high unemployment
continued indefinitely, “it will fuel persistent, large budget deficits and
lead to inflation.” You were right on the first count obviously. And yet, a
decade of fiscal expansion not only failed to produce high inflation, but was
insufficient to reach the Fed’s 2 percent inflation goal. Is it fair to say
that you underestimated America’s fiscal capacity back then? And if you
overestimated the harms of America’s large public debts in the past, what makes
you confident you aren’t doing so in the present?
First of all, in
2009, I was in favor of a bigger stimulus than the one that we got. I was not
in favor of fiscal consolidation. There’s a huge difference between the global
financial crisis and the coronavirus crisis because the former was a crisis of
aggregate demand, given the housing bust. And so monetary policy alone was
insufficient and you needed fiscal stimulus. And the fiscal stimulus that Obama
passed was smaller than justified. So stimulus was the right response, at least
for a while. And then you do consolidation.
What I have
argued this time
around is that in the short run, this is both a supply shock and a demand
shock. And, of course, in the short run, if you want to avoid a depression, you
need to do monetary and fiscal stimulus. What I’m saying is that once you run a
budget deficit of not 3, not 5, not 8, but 15 or 20 percent of GDP — and
you’re going to fully monetize it (because that’s what the Fed has been doing) — you still won’t
have inflation in the short run, not this year or next year, because you have
slack in goods markets, slack in labor markets, slack in commodities markets,
etc. But there will be inflation in the post-coronavirus world. This is because
we’re going to see two big negative supply shocks. For the last decade, prices
have been constrained by two positive supply shocks — globalization and
technology. Well, globalization is going to become deglobalization thanks to
decoupling, protectionism, fragmentation, and so on. So that’s going to be a
negative supply shock. And technology is not going to be the same as before.
The 5G of Erickson and Nokia costs 30 percent more than the one of Huawei, and
is 20 percent less productive. So to install non-Chinese 5G networks, we’re
going to pay 50 percent more. So technology is going to gradually become a
negative supply shock. So you have two major forces that had been exerting
downward pressure on prices moving in the opposite direction, and you have a massive
monetization of fiscal deficits. Remember the 1970s? You had two negative
supply shocks — ’73 and ’79, the Yom Kippur War and the Iranian Revolution.
What did you get? Stagflation.
Now, I’m not talking
about hyperinflation — not Zimbabwe or Argentina. I’m not even talking about 10
percent inflation. It’s enough for inflation to go from one to 4 percent. Then,
ten-year Treasury bonds — which today have interest rates close to zero percent
— will need to have an inflation premium. So, think about a ten-year Treasury,
five years from now, going from one percent to 5 percent, while inflation goes
from near zero to 4 percent. And ask yourself, what’s going to happen to the
real economy? Well, in the fourth quarter of 2018, when the Federal Reserve
tried to raise rates above 2 percent, the market couldn’t take it. So we don’t
need hyperinflation to have a disaster.
In other words,
you’re saying that because of structural weaknesses in the economy, even modest
inflation would be crisis-inducing because key economic actors are dependent on
near-zero interest rates?
For the last decade,
debt-to-GDP ratios in the U.S. and globally have been rising. And debts were
rising for corporations and households as well. But we survived this, because,
while debt ratios were high, debt-servicing ratios
were low, since we had zero percent policy rates and long rates close to zero —
or, in Europe and Japan, negative. But the second the Fed started to hike
rates, there was panic.
In December 2018, Jay
Powell said, “You know what. I’m at 2.5 percent. I’m going to go to 3.25. And
I’m going to continue running down my balance sheet.” And the market totally
crashed. And then, literally on January 2, 2019, Powell comes back and says,
“Sorry, I was kidding. I’m not going to do quantitative tightening. I’m not
going to raise rates.” So the economy couldn’t take a Fed funds rate of 2.5
percent. In the strongest economy in the world. There is so much debt, if
long-term rates go from zero to 3 percent, the economy is going to crash.
You’ve written a lot
about negative supply shocks from deglobalization. Another potential source of
such shocks is climate change. Many scientists believe that rising temperatures
threaten the supply of our most precious commodities — food and water. How does
climate figure into your analysis?
I am not an expert on
global climate change. But one of the ten forces that I believe will bring a
Greater Depression is man-made disasters. And global climate change, which is
producing more extreme weather phenomena — on one side, hurricanes, typhoons,
and floods; on the other side, fires, desertification, and agricultural
collapse — is not a natural disaster. The science says these extreme events are
becoming more frequent, are coming farther inland, and are doing more damage.
And they are doing this now, not 30 years from now.
So there is climate
change. And its economic costs are becoming quite extreme. In Indonesia,
they’ve decided to move the capital out of Jakarta to somewhere inland because they know that their capital is
going to be fully flooded. In New York, there are plans to build a wall all
around Manhattan at the cost of $120 billion. And then they said, “Oh no, that
wall is going to be so ugly, it’s going to feel like we’re in a prison.” So
they want to do something near the Verrazzano Bridge that’s going to cost another $120 billion. And it’s not even
going to work.
The Paris Accord said
1.5 degrees. Then they say two. Now, every scientist says, “Look, this is a
voluntary agreement, we’ll be lucky if we get three — and more likely, it will
be four — degree Celsius increases by the end of the century.” How are we going
to live in a world where temperatures are four degrees higher? And we’re not
doing anything about it. The Paris Accord is just a joke. And it’s not just the
U.S. and Trump. China’s not doing anything. The Europeans aren’t doing
anything. It’s only talk.
And then there’s the
pandemics. These are also man-made disasters. You’re destroying the ecosystems
of animals. You are putting them into cages — the bats and pangolins and all
the other wildlife — and they interact and create viruses and then spread to
humans. First, we had HIV. Then we had SARS. Then MERS, then swine flu, then
Zika, then Ebola, now this one. And there’s a connection between global climate
change and pandemics. Suppose the permafrost in Siberia melts. There are
probably viruses that have been in there since the Stone Age. We don’t know
what kind of nasty stuff is going to get out. We don’t even know what’s coming.
Job losses continue to
mount in US despite reopenings
28 May 20204
Roughly
2.1 million Americans applied for unemployment benefits last week despite the
gradual reopening of businesses around the country, bringing the running total
since the coronavirus shutdowns took hold in mid-March to about 41 million and
increasing concerns that the scourge is doing deep and potentially long-last
damage to the economy
WASHINGTON (AP) — The coronavirus
crisis threw at least 2.1 million Americans out of work last week despite the
gradual reopening of businesses around the country, stoking fears Thursday that
the scourge is doing deep and potentially long-lasting damage to the U.S.
economy.
Amid a few glimmers of hope, most of
the latest economic news from around the globe was likewise grim, as some of the
world’s most populous countries continued to report rising infections and
deaths. The confirmed U.S. death toll topped 100,000, the highest in the world,
on Wednesday.
The latest job-loss figures from the
U.S. Labor Department bring to 41 million the running total of Americans who
have filed for unemployment benefits since the coronavirus shutdowns took hold
in mid-March.
There were some encouraging signs:
The overall number of Americans currently drawing jobless benefits dropped for
the first time since the crisis began, from 25 million to 21 million. And
first-time applications for unemployment have fallen for eight straight weeks,
as states gradually let stores, restaurants and other businesses reopen and the
auto industry starts up factories again.
But the number of U.S. workers
filing for unemployment is still extraordinarily high by historical standards,
and that suggests businesses are failing or permanently downsizing, not just
laying off people until the crisis can pass, economists warn.
“That is the kind of economic
destruction you cannot quickly put back in the bottle,” said Adam Ozimek, chief
economist at Upwork.
The U.S. unemployment rate was 14.7%
in April, a level not seen since the Depression, and many economists expect it
will be near 20% in May.
The figures come amid an
intensifying debate in Congress over whether to extend $600 in extra weekly
federal unemployment benefits, provided under rescue legislation passed in
March but set to expire July 31.
Democrats have proposed extending
the payments, while Republicans have argued that the extra money could
discourage laid-off workers from returning to jobs that pay less than they are
getting on unemployment.
Kelly Kelso, a 30-year-old roadie
from Nashville for the rock group Foreigner, got her first unemployment check
last week after more than eight weeks of waiting. She said she is still
receiving far less in benefits than the $1,250 per week or more that she made
on tour.
Though she is reluctant to leave the
music industry, she said, “I have a cosmetology license. If all else fails, I
could go back to doing hair.”
Another looming storm cloud:
Economists say the sharp loss of tax revenue for state and local governments is
likely to compound the damage from the shutdowns by forcing additional public-sector
layoffs in the coming weeks.
Those layoffs have just recently
started showing up in the weekly jobless claims report. Washington state, for
example, reported layoffs of government employees.
Job cuts are also appearing far
beyond the initially hit industries such as restaurants and stores, a sign that
the damage is spreading even as businesses reopen. Washington state said it saw
layoffs in insurance, and New York state reported job cuts by information
technology companies.
Economists say many of the jobs lost
are never coming back, and double-digit unemployment could persist through
2021.
And as discouraging as the numbers
are, the real picture may be worse. The government counts people as unemployed
only if they’re actually looking for a job, and many Americans probably see no
point in trying when so many businesses are shut down.
Airlines and aircraft manufacturers
are struggling after air travel plummeted early in the outbreak. Boeing is
cutting more than 12,000 U.S. jobs through layoffs and buyouts, many expected
to be in the Seattle area. European budget airline Easyjet said it will cut up
to a third of its 15,000 employees. American Airlines plans to eliminate about
5,100 jobs.
Amtrak likewise announced it will
lay off about 20% of its 18,000 workers amid a collapse in train ridership.
A number of European countries have
strong safety-net programs that are underwriting the wages of millions of
workers and keeping them on the payroll instead of adding them to the ranks of
the unemployed. But the economic damage is mounting there, too.
Nissan is rolling back production in
Spain in a move the government said could lead to 3,000 direct job cuts and
thousands more losses at the automaker’s suppliers. And French unemployment
claims jumped 22% in April, with 843,000 more people seeking work.
Elsewhere around the world, India
saw another record daily jump in coronavirus cases. Russia reported a steady
increase in its caseload, even as the city of Moscow and provinces across the
vast country moved to ease restrictions in sync with the Kremlin’s political
agenda.
And South Korea reported its biggest
jump in infections in more than 50 days, a setback that could erase some of the
hard-won gains that have made it a model for the rest of the world.
Worldwide, the virus has infected
more than 5.7 million people and killed over 355,000, with the U.S. having the
most confirmed cases and deaths, according to a tally by Johns Hopkins
University. Europe has recorded about 170,000 deaths.
The true dimensions of the disaster
are widely believed to be significantly greater, with experts saying many
victims died without ever being tested.
___
Sewell reported from Cincinnati.
Associated Press reporters from around the world contributed to this report.
___
Follow AP pandemic coverage
at http://apnews.com/VirusOutbreak and https://apnews.com/UnderstandingtheOutbreak
Government Agencies
Still Hiring H-1B Visa Employees for American Jobs
27 May 2020151
13:48
Government
agencies around the country are hiring thousands of foreign H-1B workers to
fill well-paid government jobs needed by U.S. graduates.
The
governments’ hidden workforces of roughly 18,000 H-1B employees are an easy
target for President Donald Trump as he searches for ways to open up good jobs
for the many American graduates who have been forced out of jobs by the
coronavirus crash.
Trump also
needs to do something because he has yet to begin to deliver any part of his
dramatic 2016 campaign trail promise: “I will
end the use of the H-1B as a cheap labor program forever, and institute an
absolute requirement to hire American workers first for every visa and
immigration program. No exceptions.”
The H-1Bs
are being imported and hired at all levels of government throughout the United
States.
A small
share of the H-1Bs is hired directly by government offices, via a deliberately
complex and lengthy process managed by the Departments of Labor, State, and
Homeland Security (DHS), plus a small army of immigration lawyers.
For example,
roughly 130 foreign H-1B employees are being hired by organizations with
“department” in their names. They include the California Department of
Corrections and Rehabilitation, the New York Police Department, and the
Arkansas Department of Public Safety, according to the Labor Department data.
Many more
H-1Bs are imported by U.S. or Indian staffing companies and are then leased by
government agencies. So the federal data from October to late March shows
that roughly 3,000 H-1Bs have been requested or leased by government departments
from various staffing firms.
The
departments include transportation, agriculture, labor, health and human
services, and interior. Roughly 85 H-1Bs are being sought for the federal and
state Labor Departments, including the Labor Departments in Vermont, Idaho,
Georgia, and Pennsylvania.
Many of the
imported H-1B employees are being hired to maintain and operate computer
systems, at promised salaries above $90,000, even as those tasks can be done by
many American graduates.
The
state-level departments who want H-1Bs from staffing companies include the
Georgia Department of Transportation, Washington’s Department of Corrections,
the Ohio Department of Job & Family Services, and Maryland’s
Department of Human Services.
Roughly 100
foreigners are being requested for rental to taxpayer-backed commissions,
including the Palm Beach County Board of County Commissioners
the Washington Suburban Sanitary Commission, and the Texas Health and
Human Services Commission.
More H-1Bs
are requested by counties and boards, including the Pennsylvania Liquor Control
Board, the election boards in New York and in North Carolina, the Palm Beach
County Governmental Center, and the Superior Court of Orange County.
An
additional 400-plus H-1Bs are being rented by government “offices.” These
include the Colorado Governor’s Office of Information Technology, the U.S.
Government Publishing Office, and the NYC Financial Information Services Agency
and Office of Payroll Administration.
This set of
almost 3,000 leases and hires is just the six-month tip of an iceberg.
Each H-1B
lasts three years. So if 3,000 H-1Bs are being hired or extended during a
period of six months, then another 15,000 H-1Bs were likely hired or rented
during the prior two-and-half years of the three years.
The data
only reveals the H-1Bs who were imported for scheduled work in government
offices. It does not show or count the many H-1Bs who were imported by staffing
companies for a different job and were subsequently reassigned to a staffing
job in a government center. That reassigned H-1B population may be larger than
the 15,000 shown in the data. A large population of reassigned H-1Bs would help
explain the many anecdotal reports that Indian visa workers are a majority in
many federal computer centers.
The iceberg
goes much deeper, however, because many contractors also import H-1Bs
and other visa workers to help build software for government agencies. For
example, four states hired a Minneapolis-based software company that includes
many H-1B workers to build websites where state residents could file for
unemployment benefits. Amid the coronavirus crash, the H-1B software provided by Sagitec
Solutions proved inadequate.
Business insists that India's H-1B visa workers are vital to the Fortune
500 economy.
But evidence shows little innovation & much chaos, largely b/c the H-1Bs
work under oppressive cultural, legal & corp. pressures.
IOW, professionalism is better.#H1Bhttps://t.co/URX7rB6nof
— Neil Munro
(@NeilMunroDC) May 13,
2020
Similarly,
the underperforming and
overbudget Obamacare website
was a political disaster for President Barack Obama. Klick.com reported:
There is
some evidence that this project was, at least in part, off-shored and
that H-1B (temporary foreign worker) visas were used extensively. This seems to
have led to decisions such as the code supporting the
obscure Indian Gujarati language and comments being written in a style
consistent with offshore programmers.
But this
huge iceberg of visa workers is a huge profit center for the layers of staffing
companies. The staffing companies take large commissions from each H-1B hire,
both legally and — according to accounts provided by Indian H-1Bs — not so
legally.
For example,
Company A may win a contract to deliver 100 H-1Bs to a government agency.
Company A then rents the 100 H-1Bs from subcontractors B, C, and D. But those
subcontractors can rent H-1Bs from each other before renting them to Company A.
This hidden back-scratching process would allow the companies’ executives to
take three bites from each workers’ $100,000 salary — and also to hire
lobbyists to protect the lucrative H-1B process.
Many H-1Bs
also have to pay kickbacks to their managers to ensure they are not sent home,
usually to India. The managers “get a back cut,” said Vikram from Texas, a
former H-1B worker who is now a citizen. “It happens all the time,” he said.
The H-1B
numbers in this article are drawn from Labor Department data.
The Labor
Department’s data includes the names of the hiring company, promised wage
levels, job location, and job title. Crucially, the data also includes the
“secondary entity business name,” which displays at least one expected
workplace for each H-1B imported by staffing companies.
The data includes
requests for new hires, as well as requests for three-year extensions of
current workers’ initial three-year visa. The numbers in this article include
new hires and visa extensions.
Few hiring
requests by agencies are denied — even when the jobs are in critical
infrastructure, or allow foreign access to private information, such as tax
receipts and health data.
Federal law
says non-profit groups — including government agencies — are exempt from the
supposed annual cap of 85,000 H-1B new workers. Nationwide, roughly 90,000
“Cap Exempt” H-1Bs are employed by
non-profit groups, including agency, research laboratories, universities, and
hospitals.
DHS
officials do deny many requests by staffing companies for H-1Bs. But the
denials have little impact because the staffing companies make sure to ask for
many extra H-1Bs, usually after collecting letters from companies that say the
extra H-1Bs are needed.
Companies
game this approval process to ensure they have extra H-1Bs on hand to win new
contracts in bidding competitions against firms that only hire Americans,
including legal immigrants.
Fortune 500 lobbyists warn Trump that any pro-American reform of the
visa-worker programs may lead to discrimination.
As if the current system does not incentivize and deliver discrimination
against millions of Americans.#H1Bhttps://t.co/9GVu0THsli
— Neil Munro
(@NeilMunroDC) May 25,
2020
The Labor
Department data cited
in this article is presented on a site operated by Virgil Bierschwale, a
Texas-based software expert who says he cannot find a job amid the flood of
Indian and Chinese visa workers. Many Americans have been sidelined because
employers are eager to use the growing number of college graduate illegals,
many of whom have overstayed their visas, he said.
“Some of us
can’t work anymore because there are so many state and federal agencies using
H-1Bs. … Government agencies using our tax revenues to basically displace us,”
Bierschwale said.
The flood of
foreign workers allows companies to discriminate against older Americans, and
to exclude young American graduates, he said. “You used to be used to be to
climb the ladder and work your way up — there is no climbing the ladder anymore
because the [visa workers] are getting all jobs,” he said.
“It’s very
difficult” to get jobs in a crashed labor market that was already flooded with
imported workers, said an Indian-born citizen who formerly worked as an H-1B
worker. “I don’t see a chance — I might need to leave my IT career and work at
Walmart or something,” he said May 27.
Companies
have imported roughly 750,000
H-1Bs for a very wide variety of jobs needed by American
graduates. In addition, at least 700,000 other foreign graduates hold jobs via
the uncapped L-1, OPT, CPT, H4EAD, and TN visa programs while roughly 800,000
Americans will graduate from four-year colleges with skilled degrees in 2020.
Many former
H-1B and other visa workers overstay expired visas and create an extra pool of
illegal college graduate labor. Also, companies allegedly
use the little-monitored B-1 visa to sneak white-collar
illegals into U.S. workplaces, further reducing salaries and opportunities for
U.S. graduates.
Most of the
H-1Bs are working software jobs in exchange for pay and the chance of
citizenship. But no U.S. graduates are exempt from the H-1B competition. The
list of targeted jobs include doctors,
psychologists, marketing analysts, architects, fashion designers, editors,
designers, creative writers, managers, engineers, and much else.
“Young kids
have no clue that it could happen to them,” said Bierschwale. “When I was 40
years old, I had the best skills out there, but two years later, the manager
said, ‘If I can get ten people for the price of you, it does not matter what
skills you have.’”
For example,
the Centers for Disease Control and Prevention (CDC) has asked to hire or
extend 19 H-1Bs in fiscal 2020. The CDC’s 19 H-1Bs include two biologists,
five epidemiologists, and three statisticians. The CDC also wants to hire or
extend three H-1Bs from staffing companies, including Leidos Inc. and IShift
Corp.
In 2019, CDC
hired 18 foreign employees at an average salary of $82,195, according to
the H1BData.info website, which
also relies on government data. That pre-coronavirus 2019 inflow of foreign
workers included 12 epidemiologists and six economists.
An email to
the CDC was not returned.
According to
a database held
by DHS’s U.S. Citizenship and Immigration Services agency, the CDC has applied
for five foreign H-1B workers and to extend work visas for four other foreign
employees. Since 2018, the agency has filed for at least 51 foreign employees,
the DHS site says.
Many U.S.
executives also prefer H-1Bs because the H-1Bs know they will get sent
home if they argue with their managers, unlike U.S. professionals, said
Bierschwale. “If somebody like me sees something wrong, I’ll tell them it is
wrong, and they don’t want that. [U.S. executives] want Indians and Chinese who
stay quiet.”
Bierschwale’s
website shows that two government-backed businesses use a large share of
federal H-1Bs.
The Federal
National Mortgage Association, dubbed Fannie Mae, wants to hire or extended 575
H-1Bs, including H-1Bs imported by Accenture, Cognizant, Ernst & Young, HCL
Global, Hexaware Technologies, and Mastech Digital, many at $120,000-per-person
costs.
The Federal
Home Loan Mortgage Corporation, or Freddie Mac, wants to hire or extend 141
from staffing companies, at salaries around $100,000.
This
data matches data from nine months of 2019, presented in
October 2019 by Bloomberg:
Data
indicate Fannie Mae and Freddie Mac, which are directed by the
Federal Housing Finance Agency under a conservatorship, are the most popular
destinations among federal agencies for H-1B workers placed by third-party
companies. Together, the two account for at least 1,340 H-1B workers sponsored
by more than 460 different third-party companies.
Also high on
the list is the Health and Human Services Department (at least 290 H-1B
workers), Amtrak (at least 60 H-1B workers), the Commerce Department (at least
60 H-1B workers), and the National Aeronautics and Space Administration (at
least 40 H-1B workers).
The Pentagon
and the armed forces do not hire visa workers directly, according to the data.
The
inflow of India's visa-workers creates a huge 'bonded la
Car rental giant Hertz files for bankruptcy protection with $19BILLION
of debt after share prices plummet and 10,000 staff are laid off amid the
coronavirus pandemic
·
Hertz filed for bankruptcy protection Friday after
skipping car-lease payments last month
·
The coronavirus pandemic has crippled the Florida-based
company, which was already struggling with billions of dollars in debt
·
The company laid off around 10,000 North American workers
amid the coronavirus crisis and their share price has plummeted more than 80%
this year
Car rental company Hertz filed for Chapter 11
on Friday after failing to reach a standstill agreement with its top
lenders.
The Wall Street Journal reports
that Hertz has roughly $19 billion of debt.
That staggering amount is made up of
'$4.3billion in corporate bonds and loans and $14.4 billion in vehicle-backed
debt held at special financing subsidiaries'.
Florida-based Hertz began bankruptcy
protection proceedings in the U.S. Bankruptcy Court in Wilmington,
Delaware, in an attempt to avoid a forced
liquidation of its vehicle fleet after bookings dropped off overnight due to
the coronavirus pandemic.
'Today's action will protect the value of our
business, allow us to continue our operations and serve our customers, and
provide the time to put in place a new, stronger financial foundation to move
successfully through this pandemic and to better position us for the future,'
Chief Executive Paul E. Stone said.
Amazon CEO Jeff Bezos, who is rescinding a $2-an-hour hazard pay
increase for his warehouse workers at the end of the month, led the pack,
increasing his personal wealth by $34.6 billion since the onset of the pandemic.
Facebook CEO Mark Zuckerberg was close behind, adding $25 billion to his
fortune. Tesla CEO Elon Musk, who reopened his California auto plant in
defiance of state regulators and with the support of President Trump, saw a 48
percent increase in his wealth to $36 billion in just eight weeks as the stock
market rebounded from its collapse. All told, the nation’s 620 billionaires now
control $3.382 trillion, a 15 percent increase in two months.
US unemployment claims approach 40 million since March
22 May 2020
The United States Department of Labor
reported on Thursday that more than 2.4 million Americans applied for
unemployment insurance last week, bringing the total number of new claims to
38.6 million since mid-March, when social distancing measures and statewide
stay-at-home orders were first implemented in an effort to slow the spread of
the coronavirus.
Even with the push by the Trump
administration since then to reopen the economy and the easing of lockdown
orders in all 50 states—despite a continued rise in COVID-19 infections and
deaths—the US marked its ninth straight week in which more than 2 million
workers filed for unemployment. While this is down from the peak at the end of
March when 6.8 million applied for unemployment insurance, it still dwarfs the
worst weeks of the Great Recession in 2008.
It is expected that the official
unemployment rate for May, which is to be reported by the federal government in
the first week of June, will approach 20 percent, up from 14.7 percent last
month. This is a significant undercount, with millions of unemployed immigrants
unable to apply for benefits, and many other workers who are not currently
looking for work and therefore are not counted as unemployed.
Fortune magazine
estimates that real unemployment has already hit 22.5 percent, which is nearing
the peak of unemployment reached during the Great Depression in 1933, when the
rate rose above 25 percent. Millions more are expected to apply in the coming
weeks, pushing the numbers beyond those seen during the country’s worst
economic crisis.
But even these figures do not capture
the extent of the crisis now unfolding across the country. Millions have been
blocked for weeks from applying for unemployment compensation because of
antiquated computer systems, and a significant share of those who have applied
have been denied any payments. On top of this there are significant delays in
processing applications in multiple states, including Indiana, Missouri,
Wyoming and Hawaii. Meanwhile, Florida, which has some of the most stringent
restrictions, has refused to extend its paltry three-month limit on payments
for the few who manage to qualify.
Sparked by the pandemic, the greatest
economic crisis since the 1930s is already having a devastating impact on the
millions who have seen their jobs suddenly disappear, while millions more will
see wages, benefits and hours dramatically curtailed whenever they are able to
return to work. Optimistic projections that the US economy would quickly bounce
back once stay-at-home orders were lifted are now becoming much gloomier.
A University of Chicago analysis from earlier this
month projects that 42 percent of lost jobs will be permanently eliminated. At
the current record number, this will mean a destruction of 16.2 million jobs,
nearly double the number of jobs which were lost during the Great Recession
just over a decade ago.
“I hate to say it, but this is going to
take longer and look grimmer than we thought,” Nicholas Bloom, a Stanford
University economist and one of the co-authors of the study, told the New York Times.
A survey by the Census Bureau carried
out at the end of April and beginning of this month found that 47 percent of
adults had lost employment since March 13 or had someone in their household do
so, and 39 percent expected that they or someone else in the home would lose
their job in the next month. Nearly 11 percent reported that they had not paid
their rent or mortgage on time and more than 21 percent had slight or no
confidence that they would do so next month.
With millions missing their rent or mortgage
payments, tens of thousands of families will be thrown out on the street in the
coming weeks and months, leading to a dramatic rise in homelessness even as the
coronavirus continues to spread. While many states took steps in March to place
a moratorium on evictions, and eviction notices were unable to be filed due to
court closures, those measures are now expiring and courts are reopening.
The Oklahoma County Sheriff announced
Tuesday via their Twitter page that the department would resume enforcing evictions
on May 26. Nearly 300 eviction cases were filed in Oklahoma City between Monday
and Tuesday. This process is being repeated in cities and counties across the
country. Evictions are also set to resume in Texas next week, where many
families were ineligible for aid due to the undocumented status of one or
another parent. The CARES Act provision, which blocks evictions from properties
with federally subsidized mortgages, expires on July 25; in Texas this only
accounts for one-third of homes.
Meanwhile, another wave of layoffs and
furloughs is expected by the Congressional Budget Office at the end of June,
when the multi-billion-dollar Payment Protection Program (PPP) expires. Sold as
a bailout which would help small businesses keep workers on their payroll in
the course of necessary shutdowns, the PPP was in fact a boondoggle for large
corporations, their subsidiaries and those with connections to the Trump
administration. Many small business owners have not seen any aid, and many do
not qualify for loan forgiveness.
Amid historic levels of social misery in
the working class, times have never been better for those at the heights of
society, with America’s billionaires adding $434 billion to their total net
worth since state lockdowns began. Financial markets have soared, underwritten
by $80 billion per day from the Federal Reserve.
Amazon CEO Jeff Bezos,
who is rescinding a $2-an-hour hazard pay increase for his warehouse workers at
the end of the month, led the pack, increasing his personal wealth by $34.6
billion since the onset of the pandemic. Facebook CEO Mark Zuckerberg was close
behind, adding $25 billion to his fortune. Tesla CEO Elon Musk, who reopened
his California auto plant in defiance of state regulators and with the support
of President Trump, saw a 48 percent increase in his wealth to $36 billion in
just eight weeks as the stock market rebounded from its collapse. All told, the
nation’s 620 billionaires now control $3.382 trillion, a 15 percent increase in
two months.
US unemployment claims approach 40 million since March
22 May 2020
The United States Department of Labor
reported on Thursday that more than 2.4 million Americans applied for
unemployment insurance last week, bringing the total number of new claims to
38.6 million since mid-March, when social distancing measures and statewide
stay-at-home orders were first implemented in an effort to slow the spread of
the coronavirus.
Even with the push by the Trump
administration since then to reopen the economy and the easing of lockdown orders
in all 50 states—despite a continued rise in COVID-19 infections and deaths—the
US marked its ninth straight week in which more than 2 million workers filed
for unemployment. While this is down from the peak at the end of March when 6.8
million applied for unemployment insurance, it still dwarfs the worst weeks of
the Great Recession in 2008.
It is expected that the official
unemployment rate for May, which is to be reported by the federal government in
the first week of June, will approach 20 percent, up from 14.7 percent last
month. This is a significant undercount, with millions of unemployed immigrants
unable to apply for benefits, and many other workers who are not currently
looking for work and therefore are not counted as unemployed.
Fortune magazine
estimates that real unemployment has already hit 22.5 percent, which is nearing
the peak of unemployment reached during the Great Depression in 1933, when the
rate rose above 25 percent. Millions more are expected to apply in the coming
weeks, pushing the numbers beyond those seen during the country’s worst
economic crisis.
But even these figures do not capture
the extent of the crisis now unfolding across the country. Millions have been
blocked for weeks from applying for unemployment compensation because of
antiquated computer systems, and a significant share of those who have applied
have been denied any payments. On top of this there are significant delays in
processing applications in multiple states, including Indiana, Missouri,
Wyoming and Hawaii. Meanwhile, Florida, which has some of the most stringent
restrictions, has refused to extend its paltry three-month limit on payments
for the few who manage to qualify.
Sparked by the pandemic, the greatest
economic crisis since the 1930s is already having a devastating impact on the
millions who have seen their jobs suddenly disappear, while millions more will
see wages, benefits and hours dramatically curtailed whenever they are able to
return to work. Optimistic projections that the US economy would quickly bounce
back once stay-at-home orders were lifted are now becoming much gloomier.
A University of Chicago analysis from earlier this
month projects that 42 percent of lost jobs will be permanently eliminated. At
the current record number, this will mean a destruction of 16.2 million jobs,
nearly double the number of jobs which were lost during the Great Recession
just over a decade ago.
“I hate to say it, but this is going to
take longer and look grimmer than we thought,” Nicholas Bloom, a Stanford
University economist and one of the co-authors of the study, told the New York Times.
A survey by the Census Bureau carried
out at the end of April and beginning of this month found that 47 percent of
adults had lost employment since March 13 or had someone in their household do
so, and 39 percent expected that they or someone else in the home would lose
their job in the next month. Nearly 11 percent reported that they had not paid
their rent or mortgage on time and more than 21 percent had slight or no
confidence that they would do so next month.
With millions missing their rent or
mortgage payments, tens of thousands of families will be thrown out on the
street in the coming weeks and months, leading to a dramatic rise in
homelessness even as the coronavirus continues to spread. While many states
took steps in March to place a moratorium on evictions, and eviction notices
were unable to be filed due to court closures, those measures are now expiring
and courts are reopening.
The Oklahoma County Sheriff announced
Tuesday via their Twitter page that the department would resume enforcing
evictions on May 26. Nearly 300 eviction cases were filed in Oklahoma City
between Monday and Tuesday. This process is being repeated in cities and
counties across the country. Evictions are also set to resume in Texas next
week, where many families were ineligible for aid due to the undocumented
status of one or another parent. The CARES Act provision, which blocks
evictions from properties with federally subsidized mortgages, expires on July
25; in Texas this only accounts for one-third of homes.
Meanwhile, another wave of layoffs and
furloughs is expected by the Congressional Budget Office at the end of June,
when the multi-billion-dollar Payment Protection Program (PPP) expires. Sold as
a bailout which would help small businesses keep workers on their payroll in
the course of necessary shutdowns, the PPP was in fact a boondoggle for large
corporations, their subsidiaries and those with connections to the Trump
administration. Many small business owners have not seen any aid, and many do
not qualify for loan forgiveness.
Amid historic levels of social misery in
the working class, times have never been better for those at the heights of
society, with America’s billionaires adding $434 billion to their total net
worth since state lockdowns began. Financial markets have soared, underwritten
by $80 billion per day from the Federal Reserve.
Amazon CEO Jeff Bezos,
who is rescinding a $2-an-hour hazard pay increase for his warehouse workers at
the end of the month, led the pack, increasing his personal wealth by $34.6
billion since the onset of the pandemic. Facebook CEO Mark Zuckerberg was close
behind, adding $25 billion to his fortune. Tesla CEO Elon Musk, who reopened
his California auto plant in defiance of state regulators and with the support
of President Trump, saw a 48 percent increase in his wealth to $36 billion in
just eight weeks as the stock market rebounded from its collapse. All told, the
nation’s 620 billionaires now control $3.382 trillion, a 15 percent increase in
two months.
Further details emerge on the extent of the mid-March financial crisis
By Nick Beams
22 May 2020
An article in the Wall Street Journal (WSJ) earlier
this week provided further details on how close financial markets came to a
meltdown in the middle of March.
Entitled “The Day Coronavirus Nearly
Broke the Financial Markets,” the article recorded how markets in financial
assets, usually regarded as being almost as good as cash, froze when “there
were almost no buyers.”
“The financial system has endured
numerous credit crunches and market crashes, and the memories of 1987 and 2008
crises set a high bar for marker dysfunction. But long-time investors … say
mid-March of this year was far more severe in a short period. Moreover, the
stresses to the financial system were broader than many had seen,” it said.
In testimony and interviews, US Federal
Reserve chair Jerome Powell has been at pains to emphasise that regulatory
mechanisms and policies introduced after the 2008 crisis have strengthened the
financial system.
In his interview on the CBS “60 Minutes”
program last Sunday, for instance, Powell downplayed the threat of unemployment
reaching levels not seen since the Great Depression. In the 1930s, he said, the
financial system had “really failed,” but that today “our financial system is
strong [and] has been able to withstand this. And we spent ten years
strengthening it after the last crisis. So that’s a big difference.”
In his interview on the CBS “60 Minutes”
program last Sunday, for example, when asked about the prospect of US
unemployment rising to levels not seen since the Great Depression, Powell
stated that at that time the financial system “really failed.”
He claimed that in contrast to the
1930s, “Here, our financial system is strong [and] has been able to withstand
this. And we spent ten years strengthening it after the last crisis. So that’s
a big difference.”
In fact, Powell’s reassurances are contradicted
by the Fed’s own Financial Stability Report issued last Friday. Focusing on the
mid-March crisis, it noted: “While the financial regulatory reforms adopted
have substantially increased the resilience of the financial sector, the
financial system nonetheless amplified the shock, and financial sector
vulnerabilities are likely to be significant in the near term.”
The events in mid-March revealed what
has actually taken place. While the Fed has taken limited measures to try to
curb some of the riskier activities of the banks that sparked the 2008 crash,
the dangers have simply been shifted to other areas of the financial system.
The speculation of the banks may have
been curtailed somewhat, but it is now being carried out by hedge funds and
other financial operators. They are financed with ultra-cheap money provided by
the Fed through its low-interest rate regime and market operations, such as
quantitative easing and, more recently, its massive interventions into the
overnight repo market.
The WSJ report, based on interviews with
Wall Street operatives, provided some insights into how the financial system
“amplified” the shock of the pandemic.
Ronald O’Hanley, CEO of the investor
services and banking holding company State Street, recounted the situation that
confronted him on the morning of Monday, March 16. On Sunday evening, before
markets opened, the Fed had announced it was cutting its base rate to zero and
was planning to buy $700 billion in bonds, but with no effect.
According to the report, a senior deputy
told O’Hanley that “corporate treasurers and pension managers, panicked by the
growing economic damage from the COVID-19 pandemic, were pulling billions of
dollars from certain money-market funds. This was forcing the funds to try to
sell some of the bonds they held. But there were almost no buyers. Everybody
was suddenly desperate for cash.”
The article noted that rather than take
comfort from the Fed’s extraordinary Sunday evening actions, “many companies,
governments, bankers and investors viewed the decision as reason to prepare for
the worst possible outcome from the coronavirus pandemic.” The result was that
a “downdraft in bonds was now a rout.”
It extended into what had been regarded
as the most secure areas of the financial system.
The WSJ article continued: “Companies
and pension managers have long-relied on money-market funds that invest in
short-term corporate and municipal debt holdings considered safe and liquid
enough to be classified as ‘cash equivalents.’ … But that Monday, investors no
longer believed certain money funds were cash-like at all. As they pulled their
money out, managers struggled to sell bonds to meet redemptions.”
So severe was the crisis that
Prudential, one of the largest insurance companies in the world, was “also
struggling with normally safe securities.”
The article provided a striking example
of how, when a fundamentally dysfunctional and rotting system seeks to
undertake a reform, it generally only exacerbates its underlying crisis. This
phenomenon has been long-known in the field of politics, but the events of
mid-March show it applies in finance as well.
On the Monday morning when the crisis
broke, Vikram Rao, the head of the debt-trading desk at the investment firm
Capital Group, contacted senior bank executives for an explanation as to why
they were not trading and was met with the same answer.
“There was no room to buy bonds and
other assets and still remain in compliance with tougher guidelines imposed by
regulators after the previous financial crisis. In other words, capital rules
intended to make the financial system safer were, at least in this instance,
draining liquidity from the markets,” the WSJ report stated.
The crisis had a major impact on
investors who had leveraged their activities with large amounts of debt—one of
the chief means of accumulating financial profit in a low-interest rate regime.
According to the WSJ article: “The slump
in mortgage bonds was so vast it crushed a group of investors that had borrowed
from banks to juice their returns: real-estate investment funds.”
The Fed’s actions, have, at least
temporarily, quelled the storm. But it has only done so by essentially becoming
the backstop for all areas of the financial market—Treasury bonds, municipal
debt, credit card and student loan debt, the repo market and corporate bonds,
including those that have fallen from investment-grade to junk status.
And, as Powell made clear in his “60
Minutes” interview, the Fed plans to go even further if it considers that to be
necessary.
“Well, there’s a lot more we can do,” he
said. “I will say that we’re not out of ammunition by a long shot. No, there’s
really no limit to what we can do with these lending programs that we have. So
there’s a lot more we can do to support the economy, and we’re committed to
doing everything we can as long as we need to.”
The claim the Fed is supporting the
“economy” is a fiction. It functions not for the economy of millions of working
people, but as the agency of Wall Street, ready to pull out all stops so that
the siphoning of wealth to the financial oligarchy, which it has already
promoted, can continue.
An indication of what “more” could
involve is provided in the minutes of the Fed’s April 28–29 meeting.
There was a discussion on whether the
Fed should organise its purchases of Treasury securities to cap the yield on
short and medium-term bonds. This is a policy employed by the Bank of Japan
that has also recently been adopted by the Reserve Bank of Australia.
No immediate decision was reached, but
the issue is certain to be raised again. Over the next few months, the US
Treasury will issue new bonds to finance the operation of the CARES Act that
has provided trillions of dollars to prop up corporations while providing only
limited relief to workers.
By itself, the issuing of new debt would
lead to a fall in the prices of bonds because of the increase in their supply,
leading to a rise of their yields (the two move in opposite directions) and
promoting a general rise in interest rates—something the Fed wants to avoid at
all costs in the interests of Wall Street.
The only way the Fed can counter this
upward pressure is to intervene in the market to buy bonds, thereby keeping
their yield down. This would formalise what is already de facto taking place,
where one arm of the capitalist state, the US Treasury, issues debt while
another arm, the Fed, buys it.
This would further heighten the mountain
of fictitious capital which, as the events of mid-March so graphically
revealed, has no intrinsic value and is worth essentially zero.
The ruling class cannot restore
stability to the financial system by the endless creation of still more money
at the press of a computer button. Real value must be pumped into financial
assets through the further intensification of the exploitation of the working
class and a deepening evisceration of social programs.
Financial crises are presented in the
media and elsewhere as being about numbers. But behind the economic and
financial data are the interests of two irreconcilably opposed social classes—the
working class, the mass of society, and the ruling corporate and financial
oligarchy whose interests are defended by the state of which the Fed is a
crucial component.
As 2008 demonstrated, what emerges from
a financial crisis is a deepening class polarisation. That will certainly be
the outcome of the mid-March events. A massive social confrontation, already
developing long before the pandemic arrived on the scene, is looming in which
the working class will be confronted with the necessity to fight for political
power in order to take the levers of the economy and financial system into its
own hands.
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