Friday, February 19, 2016

The Us Economy Has Not and Will Not Recover

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The US economy died when middle class jobs were offshored and when the financial system was deregulated.
Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.
However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.
The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.
Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible. Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.
The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.
Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.” Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer. Corporate executives helped to boost the stock market by using the companies’ profits and by taking out loans in order to buy back the companies’ stocks, thus further expanding debt.
Those few benefitting from inflated financial asset prices produced by Quantitative Easing and buy-backs are a much smaller percentage of the population than was affected by the Greenspan consumer credit expansion. A relatively few rich people are an insufficient number to drive the economy.
The Federal Reserve’s zero interest rate policy was designed to support the balance sheets of the mega-banks and denied Americans interest income on their savings. This policy decreased the incomes of retirees and forced the elderly to reduce their consumption and/or draw down their savings more rapidly, leaving no safety net for heirs.
Using the smoke and mirrors of under-reported inflation and unemployment, the US government kept alive the appearance of economic recovery. Foreigners fooled by the deception continue to support the US dollar by holding US financial instruments.
The official inflation measures were “reformed” during the Clinton era in order to dramatically understate inflation. The measures do this in two ways. One way is to discard from the weighted basket of goods that comprises the inflation index those goods whose price rises. In their place, inferior lower-priced goods are substituted.
For example, if the price of New York strip steak rises, round steak is substituted in its place. The former official inflation index measured the cost of a constant standard of living. The “reformed” index measures the cost of a falling standard of living.
The other way the “reformed” measure of inflation understates the cost of living is to discard price rises as “quality improvements.” It is true that quality improvements can result in higher prices. However, it is still a price rise for the consumer as the former product is no longer available. Moreover, not all price rises are quality improvements; yet many prices rises that are not can be misinterpreted as “quality improvements.”
These two “reforms” resulted in no reported inflation and a halt to cost-of-living adjustments for Social Security recipients. The fall in Social Security real incomes also negatively impacted aggregate consumer demand.
The rigged understatement of inflation deceived people into believing that the US economy was in recovery. The lower the measure of inflation, the higher is real GDP when nominal GDP is deflated by the inflation measure. By understating inflation, the US government has overstated GDP growth.
What I have written is easily ascertained and proven; yet the financial press does not question the propaganda that sustains the psychology that the US economy is sound. This carefully cultivated psychology keeps the rest of the world invested in dollars, thus sustaining the House of Cards.
John Maynard Keynes understood that the Great Depression was the product of an insufficiency of consumer demand to take off the shelves the goods produced by industry. The post-WW II macroeconomic policy focused on maintaining the adequacy of aggregate demand in order to avoid high unemployment. The supply-side policy of President Reagan successfully corrected a defect in Keynesian macroeconomic policy and kept the US economy functioning without the “stagflation” from worsening “Philips Curve” trade-offs between inflation and employent. In the 21st century, jobs offshoring has depleted consumer demand’s ability to maintain US full employment.
The unemployment measure that the presstitute press reports is meaningless as it counts no discouraged workers, and discouraged workers are a huge part of American unemployment. The reported unemployment rate is about 5%, which is the U-3 measure that does not count as unemployed workers who are too discouraged to continue searching for jobs.
The US government has a second official unemployment measure, U-6, that counts workers discouraged for less than one-year. This official rate of unemployment is 10%.
When long term (more than one year) discouraged workers are included in the measure of unemployment, as once was done, the US unemployment rate is 23%. (See John Williams, shadowstats.com)
Fiscal and monetary stimulus can pull the unemployed back to work if jobs for them still exist domestically. But if the jobs have been sent offshore, monetary and fiscal policy cannot work.
What jobs offshoring does is to give away US GDP to the countries to which US corporations move the jobs. In other words, with the jobs go American careers, consumer purchasing power and the tax base of state, local, and federal governments. There are only a few American winners, and they are the shareholders of the companies that offshored the jobs and the executives of the companies who receive multi-million dollar “performance bonuses” for raising profits by lowering labor costs. And, of course, the economists, who get grants, speaking engagements, and corporate board memberships for shilling for the offshoring policy that worsens the distribution of income and wealth. An economy run for a few only benefits the few, and the few, no matter how large their incomes, cannot consume enough to keep the economy growing.
In the 21st century US economic policy has destroyed the ability of real aggregate demand in the US to increase. Economists will deny this, because they are shills for globalism and jobs offshoring. They misrepresent jobs offshoring as free trade and, as in their ideology free trade benefits everyone, claim that America is benefitting from jobs offshoring. Yet, they cannot show any evidence whatsoever of these alleged benefits. (See my book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.) http://www.amazon.com/Failure-Laissez-Faire-Capitalism/dp/0986036250/ref=sr_1_1?s=books&ie=UTF8&qid=1455746560&sr=1-1&keywords=paul+craig+roberts-the+failure+of+laissez-faire+capitalism [1]
As an economist, it is a mystery to me how any economist can think that a population that does not produce the larger part of the goods that it consumes can afford to purchase the goods that it consumes. Where does the income come from to pay for imports when imports are swollen by the products of offshored production?
We were told that the income would come from better-paid replacement jobs provided by the “New Economy,” but neither the payroll jobs reports nor the US Labor Departments’s projections of future jobs show any sign of this mythical “New Economy.”
There is no “New Economy.” The “New Economy” is like the neoconservatives promise that the Iraq war would be a six-week “cake walk” paid for by Iraqi oil revenues, not a $3 trillion dollar expense to American taxpayers (according to Joseph Stiglitz and Linda Bilmes) and a war that has lasted the entirety of the 21st century to date, and is getting more dangerous.
The American “New Economy” is the American Third World economy in which the only jobs created are low productivity, low paid nontradable domestic service jobs incapable of producing export earnings with which to pay for the goods and services produced offshore for US consumption.
The massive debt arising from Washington’s endless wars for neoconservative hegemony now threaten Social Security and the entirety of the social safety net. The presstitute media are blaming not the policy that has devasted Americans, but, instead, the Americans who have been devasted by the policy.
Earlier this month I posted readers’ reports on the dismal job situation in Ohio, Southern Illinois, and Texas. In the March issue of Chronicles, Wayne Allensworth describes America’s declining rural towns and once great industrial cities as consequences of “globalizing capitalism.” A thin layer of very rich people rule over those “who have been left behind”—a shrinking middle class and a growing underclass. According to a poll last autumn, 53 percent of Americans say that they feel like a stranger in their own country.
Most certainly these Americans have no political representation. As Republicans and Democrats work to raise the retirement age in order to reduce Social Security outlays, Princeton University experts report that the mortality rates for the white working class are rising. The US government will not be happy until no one lives long enough to collect Social Security.
The United States government has abandoned everyone except the rich.
In the opening sentence of this article, I said that the two murderers of the American economy were jobs offshoring and financial deregulation. Deregulation greatly enhanced the ability of the large banks to financialize the economy. Financialization is the diversion of income streams into debt service. When debt service absorbs a large amount of the available income, the economy experiences debt deflation. The service of debt leaves too little income for purchases of goods and services and prices fall.
Michael Hudson, who I recently wrote about, is the expert on finanialization. His book, Killing the Host, which I recommended to you, tells the complete story. Briefly, financialization is the process by which creditors capitalize an economy’s economic surplus into interest payments to themselves. Perhaps an example would be a corporation that goes into debt in order to buy back its shares. The corporation achieves a temporary boost in its share prices at the cost of years of interest payments that drain the corporation of profits and deflate its share price.
Michael Hudson stresses the conversion of the rental value of real estate into mortgage payments. He emphasizes that classical economists wanted to base taxation not on production, but on economic rent. Economic rent is value due to location or to a monopoly position. For example, beachfront property has a higher price because of location. The difference in value between beachfront and nonbeachfront property is economic rent, not a produced value. An unregulated monopoly can charge a price for a service that is higher than the price that would bring that service unto the market.
The proposal to tax economic rent does not mean taxing you on the rent that you pay your landlord or taxing your landlord on the rent that you pay him such that he ceases to provide the housing. By economic rent Hudson means, for example, the rise in land values due to public infrastructure projects such as roads and subway systems. The rise in the value of land opened by a new road and in housing and commercial space along a new subway line is not due to any action of the property owners. This rise in value could be taxed in order to pay for the project instead of taxing the income of the population in general. Instead, the rise in land values raises appraisals and the amount that creditors are willing to lend on the property. New purchasers and existing owners can borrow more on the property, and the larger mortgages divert the increased land valuation into interest payments to creditors. Lenders end up as the major beneficiaries of public projects that raise real estate prices.
Similarly, unless the economy is financialized to such an extent that mortgage debt can no longer be serviced, when central banks lower interest rates property values rise, and this rise can be capitalized into a larger mortgage.
Another example would be property tax reductions and legislation such as California’s Proposition 13 that freeze in whole or part the property tax base. The rise in real estate values that escape taxation are capitalized into larger mortgages. New buyers do not benefit. The beneficiaries are the lenders who capture the rise in real estate prices in interest payments.
Taxing economic rent would prevent the financial system from capitalizing the rent into debt instruments that pay interest to the financial sector. Considering the amount of rents available to be taxed, taxing rents would free production from income and sales taxation, thus lowering consumer prices and freeing labor and productive capital from taxation.
With so much of land rent already capitalized into debt instruments shifting the tax burden to economic rent would be challenging. Nevertheless, Hudson’s analysis shows that financialization, not wage suppression, is the main instrument of exploitation and takes place via the financial system’s conversion of income streams into interest payments on debt.
I remember when mortgage service was restricted to one-quarter of household income. Today mortgage service can eat up half of household income. This extraordinary growth crowds out the production of goods and services as less of household income is available for other purchases.
Michael Hudson and I bring a total indictment of the neoliberal economics profession, “junk economists” as Hudson calls them.

 Inequality Will Not Go Away On Its Own. Here’s How to Close the Gap.

To ensure a future of shared prosperity, we need to rewrite the rules that protect the wealthiest Americans.

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The immediate crisis may have passed, but most Americans still haven’t recovered from the worst economic disaster since the Great Depression. Wealthy Americans, on the other hand, are doing better than ever. In the three years after the recession hit, economist Emmanuel Saez has calculated, the top 1 percent captured an incredible 91 percent of the nation’s income growth.
This latest surge in inequality has not gone unnoticed. In 2011, the Occupy movement’s “We Are the 99 Percent” rallying cry thrust our nation’s great divide onto the center stage of American politics. In 2014, an international best seller from a previously unknown French economist, Thomas Piketty’s Capital in the Twenty-First Century, sounded the alarm about the global plutocracy that will emerge if current trends continue. In 2015, Black Lives Matter activists connected the dots between police crackdowns and the local revenue shortfalls made inevitable by tax cuts for America’s wealthiest.
The climate-justice movement, meanwhile, has highlighted the fact that our dream of unfettered economic growth imperils the very future of humankind on this planet, and that global climate change is hitting the poor and people of color hardest. To save our earth in its current form, we’ll need to start thinking much more seriously about sustainability and equitable distribution.
All of these currents have contributed to inequality’s unprecedented visibility in the 2016 presidential race. Senator Bernie Sanders has made America’s toxic concentration of wealth the centerpiece of his campaign. Hillary Clinton has also acknowledged that inequality is a serious problem. And a solid majority of Americans agree: According to polls, 75 percent support raising the minimum wage, and 68 percent support increasing taxes on people earning more than $1 million. Even 76 percent of our billionaires, a Forbes survey found, regard income inequality as a “serious societal problem.”
Unfortunately, all this rising concern has not yet translated into significant results. To be sure, a number of states and localities have raised the minimum wage. The Obama administration has also granted home-care workers the right to wage protections and expanded the number of workers receiving paid sick leave and overtime pay. The Dodd-Frank financial reforms have taken some modest steps to rein in CEO pay and protect ordinary Americans from reckless Wall Street greed. And there is increasing bipartisan support for addressing the policies of mass incarceration that have widened the racial divide. But the overall trend toward inequality is actually accelerating.
In fact, inequality has kicked into hyperdrive. America’s 400 richest individuals, according to the new “Billionaire Bonanza” report from the Institute for Policy Studies, now have more wealth than the bottom 61 percent of the US population. Our nation’s 20 richest individuals—a group small enough to fit in a single Gulfstream jet—have more wealth than the bottom half of the entire US population.
These inequalities will not go away on their own. Hereditary wealth will soon dominate us, as Piketty has shown, unless we boldly intervene. But just how should we do it?
§ We need to see inequality as a deep systemic problem. Piecemeal interventions have not helped slow or reverse the pace of wealth concentration. We’ve now hit inequality warp speed. Inequality grew steadily between the 1970s and the early years of the 21st century, with the rules that govern our economy encouraging both wage stagnation and wealth updraft. But since the economic meltdown of 2008, even larger swaths of income and wealth gains have flowed to the top 1 percent.
§ We need to concentrate more on wealth concentration. Most of our national discourse on fighting inequality has involved income inequality. But the even deeper problem involves the maldistribution of our national and global wealth. We need to address both wage and asset inequality.
§ We need to go beyond “good government” reforms. Real democracy can never flourish alongside massive personal and business fortunes. As long as wealthy individuals and giant corporations can buy elections and dictate policy, we will never reverse extreme inequality.
§ We need to recognize the racial wealth divide.The huge racial gap in household net worth reflects a multigenerational legacy of discrimination in asset building—and requires a targeted set of interventions.
§ We need to understand the powerful narratives that justify inequality. Our political culture has internalized the classic justifications for social and economic injustice. Many of those at the bottom believe that they can get ahead—and even get rich—with hard work. Those at the top believe they’ve earned everything on their own. And many Americans see our raging inequality as a situation impossible to change.
§ We need to think globally. America’s ├╝ber-rich and most profitable corporations think globally all the time. They regularly shift trillions of dollars into offshore tax havens, away from public tracking and taxation. Real change will require global action to track wealth flows and hold the awesomely affluent to account.
§ Most of all, we need game changers. If you’re playing in a game where the rules turn out to be rigged, you need to change the game. Americans of modest means face all sorts of rigged rules. But we’ll never truly change them until we engage and galvanize new hearts and minds. We need campaigns that empower large constituencies to fight for greater equality.
There are plenty of precedents. In the 1930s, the movement that won Social Security inspired millions of seniors across the country to press for federal safeguards against widespread elder poverty. And that successful movement left behind a stakeholder constituency strong enough to defend Social Security from repeal.
More recently, progressive tax advocates in Washington State linked revenue from an estate tax to an education legacy trust fund that finances K–12 and state higher education. Friends of the fortunate tried to repeal that tax with a ballot initiative, but the proposal won by a 62 to 38 percent margin.
As these and other examples make clear, game-changing campaigns can reduce inequality if they:
• Challenge entrenched wealth and power with policies that reduce the share of treasure at the top;
• Democratize power by limiting the influence of money in our political system;
• Expand opportunity and justice for those marginalized by structural racism and sexism;
• Create new narratives that connect redistributive rule changes to larger values and beliefs;
• Cut across single-issue “silos” and address racial justice, democracy, and peace;
• Respect planetary limits; and
• Mobilize movements by engaging constituencies that will fight for such policies and have a stake in their future.
The proposals that follow suggest the sorts of game changers that could begin to reverse runaway inequality. The movement-building groups that will drive the next era have already turned some of these ideas into viable campaigns to ensure a future of shared prosperity.

21 New Numbers That Show That The Global Economy Is Absolutely Imploding

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After a series of stunning declines through the month of January and the first half of February, global financial markets seem to have found a patch of relative stability at least for the moment.  But that does not mean that the crisis is over.  On the contrary, all of the hard economic numbers that are coming in from around the world tell us that the global economy is coming apart at the seams.  This is especially true when you look at global trade numbers.  The amount of stuff that is being bought, sold and shipped around the planet is falling precipitously.  So don’t be fooled if stocks go up one day or down the next.  The truth is that we are in the early chapters of a brand new economic meltdown, and I believe that all of the signs indicate that it will continue to get worse in the months ahead.  The following are 21 new numbers that show that the global economy is absolutely imploding…
#1 Chinese exports fell by 11.2 percent year over year in January.
#2 Chinese imports were even worse in January.  On a year over year basis, they declined a whopping 18.8 percent.
#3 It may be hard to believe, but Chinese imports have now plunged for 15 months in a row.
#4 In India, exports were down 13.6 percent on a year over year basis in January.
#5 In Japan, exports declined 8 percent in December on a year over year basis, while imports plummeted 18 percent.
#6 For the sixth time in six years, Japanese GDP growth has gone negative.
#7 In the United States, exports were down 7 percent on a year over year basis in December.
#8 U.S. factory orders have fallen for 14 months in a row.
#9 The Restaurant Performance Index in the United States has dropped to the lowest level that we have seen since 2008.
#10 This month the Baltic Dry Index fell below 300 for the first time ever.
#11 It is now cheaper to rent a 1,100 foot merchant vessel than it is to rent a Ferrari.
#12 Orders for Class 8 trucks in the United States dropped by 48 percent on a year over year basis in January.
#13 Due to a lack of demand for trucks, Daimler just laid off 1,250 U.S. workers.
#14 Even though Saudi Arabia and Russia have agreed to freeze oil production at current levels, the price of U.S. oil has still fallen below 30 dollars a barrel.
#15 It is being reported that 35 percent of all oil and gas companies around the world are at risk of falling into bankruptcy.
#16 According to CNN, 67 oil and gas companies in the United States filed for bankruptcy during 2015.
#17 The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.
#18 All over America, retail stores are shutting down at a stunning pace.  The following list of store closures comes from one of my previous articles
-Wal-Mart is closing 269 stores, including 154 inside the United States.
-K-Mart is closing down more than two dozen stores over the next several months.
-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.
-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.
-The Gap is in the process of closing 175 stores in North America.
-Aeropostale is in the process of closing 84 stores all across America.
-Finish Line has announced that 150 stores will be shutting down over the next few years.
-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.
#19 The price of gold is enjoying its best quarterly performance in 30 years.
#20 Global stocks have fallen into bear market territory, which means that about one-fifth of all global stock market wealth has already been wiped out.
#21 Unfortunately for global central banks, they have pretty much run out of ammunition.  Since March 2008, central banks have cut interest rates 637 timesand they have purchased a staggering 12.3 trillion dollars worth of assets.  There is not much more that they can do, and now the next great crisis is upon us.
Without any outside influences, the global economy and the global financial system will continue to rapidly fall apart.
But if we do have a major “black swan event” take place, that could cause the bottom to fall out at any moment.
In particular, I am deeply concerned about the possibility that World War IIIcould be sparked in the Middle East.  In an article that I published earlier today entitled “Turkey Is Asking The United States To Take Part In A Ground Invasion Of Syria“, I included a quote from Turkish Foreign Minister Mevlut Cavusoglu that reveals just how eager Turkey and Saudi Arabia are for war to begin…
Some countries like us, Saudi Arabia and some other Western European countries have said that a ground operation is necessary,” Turkish Foreign Minister Mevlut Cavusoglu told Reuters in an interview.
However, this kind of action could not be left to regional powers alone. “To expect this only from Saudi Arabia, Turkey and Qatar is neither right nor realistic. If such an operation is to take place, it has to be carried out jointly, like the (coalition) air strikes,” he said.
The Turks and the Saudis very much want the United States to take a leading role in any ground invasion of Syria, but the Obama administration is not likely to do that.
So we shall see if the Turks and the Saudis are willing to go ahead without us.  Let us hope that they do not decide to invade Syria, because that could start the biggest war in the Middle East that any of us have ever seen.
Unfortunately, Turkey is already attacking.
Turkey has been shelling Kurdish and Syrian military positions in northern Syria for four days in a row even though the Obama administration has been urging them to stop.
The first month and a half of 2016 has already been quite chaotic, and the stage is set for global events to greatly accelerate during the months ahead.
Sadly, the mainstream media in the United States is largely ignoring the preparations for a ground invasion of Syria, and they keep telling us that the global economy is going to be just fine, so most ordinary Americans are going to be absolutely blindsided by what is about to happen.

Has the Crash of the Global Financial Markets Begun?

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Even as some insist that the global economy is in “secular stagnation,” the facts suggest that we may be entering the “worst” depression in history. The global markets have been on a slippery slope since the summer of 2007, and things have only been getting worse in 2016. The picture looks dismal, no matter which theoretical lens one uses. (This article was written on 5 February before last week’s tumble in global and Indian markets.) 

As the following quotation from Bradford DeLong’s 8 January 2016 Huffington Post article demonstrates, one of the ongoing debates among economists of many tribes is whether the period that began in the summer of 2007 will be called the “Greatest Depression” or the “Longest Depression” by future economic historians.

Unless something big and constructive in the way of global economic policy is done soon, we will have to change Stiglitz’s first name to ‘Cassandra’—the Trojan prophet princess who was always wise and always correct, yet cursed by the god Apollo to be always ignored. Future economic historians may not call the period that began in 2007 the ‘Greatest Depression’. But as of now, it is highly and increasingly probable that they will call it the ‘Longest Depression’.

I offer “Worst Depression” as the third alternative and leave it to future economic historians to call the period that began in 2007 whatever they want. However, some sort of consensus is emerging as the reconciliation prize of this debate. It is that the period that began in the summer of 2007 is some sort of depression, despite Lawrence Summers still calling it secular stagnation.

Market Crash

A second and more heated ongoing debate is whether the global financial markets will crash or not. Of course, there are even those who claim that the global financial markets have crashed already, but we are the minority these days. Apparently to some, an evaporating $14.4 trillion in the world equity markets from its peak of $73.1 trillion on 14 June 2015 to $58.7 trillion on 31 January 2016 does not count as a market crash.

And there are some minor debates even among those of us who claim that the crash has already occurred. The minor debates are about when exactly the crash started: the third quarter of 2014, or the second quarter of 2015, or the third quarter of 2015, or with the turn of 2016 and the like. I must confess, however, that I appear to be the only one who claims that the crash started in the third quarter of 2014, at least to my knowledge.

But, what did happen in the third quarter of 2014?

On 18 September 2014, the US market index (Standard & Poor’s 500 or S&P 500) peaked and stayed more or less at the same level the next day. It started to decline after 19 September and bottomed on 15 October 2014. The total decline from 19 September to 15 October was about 7.4%, falling short of 10% to qualify as a market correction.

Quantitative Easing Stops

After the fact, many explanations can be and were offered such as concerns about the absence of aggregate demand in the world, the possibility of the Federal Reserve or Fed (the US central bank) raising the interest rates, lower than expected inflation in China, and other such explanations. Ongoing in the background, however, was the Fed’s winding down of the bond purchases in its third bond-buying programme, also known as Quantitative Easing 3 (QE3). This winding down of the QE3 started in February 2014 and ended on 29 October 2014 (I had discussed QEs in an earlier column in EPW (10 October 2015)).

With the benefit of hindsight, I can now say that the real reason for this 7.4% decline from 19 September to 15 October 2014 was the 17 September press release of the minutes of the meeting of the Fed on 16–17 September. The minutes announced that the Fed officials had decided to reduce the bond purchases to $15 billion a month and agreed to end the QE programme after their 28–29 October meeting if the economy continued to improve as expected.

Apparently, it took two days for readers of the minutes to digest the information and the slide started a day after 19 September to continue until 15 October. Then, on 16 October 2014, James Bullard, the President of the Federal Reserve Bank of St Louis, came out and said that the Fed may want to extend its bond-buying programme beyond October to keep its policy options open, given falling US inflation expectations. This calmed fears and the market resumed its upward trend for a while with ups and downs, of course. Had he not done that, would the market have continued sliding down? Who knows?

Then came the second quarter of 2015.

The slide of Chinese stocks began on 12 June 2015. From 12 June to 24 August 2015, the Shanghai Composite Index lost 38% of its value while the world equity market capitalisation declined by about $10 trillion. This was an unquestionable crash that started in the second quarter and ended in the third quarter.

Then, in the third quarter of 2015, came the Chinese yuan devaluation of 11 August 2015.
The People’s Bank of China shocked the markets on 11 August with the yuan’s biggest one-day devaluation in 20 years, lowering its daily mid-point trading price to 1.87% less against the dollar. The devaluation continued until 13 August, totalling a 3% decline of the yuan against the dollar in three days. This sent shockwaves through the financial markets, taking stocks and Asian currencies down with it.

Shortly after, on 18 August 2015, the Shanghai Composite index started crashing again, but this time taking the US equity indexes down with it. From 17 August to 25 August 2015 it crashed about 25%, and individual crashes on 24 August and 25 August were about 9% and 7% respectively. Meanwhile in the US, the S&P 500 fell by 11.2% from 17 August to 25 August 2015, with the largest decline on 24 August. This is now among the “Black Mondays” of history, and some even call 25 August 2015 “Black Tuesday.”

After this, many interventions by the world’s major central banks and others took place, and the markets started to move up happily ever after. Well, not quite. With ups and downs, but up on the average until the turn of the year.

An important event before the turn of the year took place on 16 December 2015. Finally, on that day, the Fed did what it had been advertising at least since the summer of 2013: it raised its policy rate—the Fed Funds Target Rate—by 25 basis points. This was the first Fed rate hike in over nine years. The markets took notice, but then it was the holiday season, so nothing serious happened until the turn of the year.

Latest Slide

Then 2016 arrived and the markets opened on 4 January 2016.

Since then the equity markets have been in turmoil. Between 29 December 2015 and 20 January 2016, the S&P 500 has declined by about 11% (a warranted correction) and the world equity market capitalisation dropped by about $7 trillion. After 20 January 2016 and up to 5 February, the markets have recovered some, but up and down daily swings of significant sizes continue to occur.

Here are a few events since the beginning of 2016.
(i) Rumours that the Italian banking system might collapse.
(ii) Rumours that Deutsche Bank could become the next Lehman Brothers.
(iii) Chinese economy is facing a mountain of bad loans that could exceed $5 trillion.
(iv) The negative interest rate programme in Japan.
(v) The 10 Year US Treasury Rate is going below 1.80%, and moving up and down wildly.
(vi) Oil price has gone below $30 per barrel, and has moved up and down wildly.
(vii) Gold price has gone above $1,155 per troy ounce, and has moved up and down wildly.
(viii) The Baltic Dry Index, a measure of the health of world trade, crashed below 300 for the first time in its entire history.
These should be enough. I guess you get the picture.

Let me now throw in some terminology. Marxian “over-accumulation,” “overproduction,” and “underconsumption” crises theories, Keynesian theory of “lack of aggregate demand,” “financial instability hypothesis” of Minsky, “debt deflation theory of depressions” by Irving Fisher, Steve Keen’s “excessive private debts,” Michael Hudson’s “debts that cannot be paid will not be,” and the like. No matter which theory you use to look at the picture, your conclusion will be the same.
Whether it is the “longest” or the “greatest,” the world has been in depression since the summer of 2007. And the global market crash is already underway.

On 29 January 2016, the Guardian asked a number of economists whether the gyrating financial markets are facing a global meltdown. One of the economists was the former Greek Finance Minister Yanis Varoufakis. He concluded his response as follows. “Should we be afraid? Yes. Is it inevitable that a new 2008 is coming? In political economics, nothing is inevitable.”

I respectfully disagree.