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Dr. Rasmus updates analysis of key economic developments of the past week: the latest events around the US-China trade negotiations and trade war, the estimated effects of the US government shutdown after four weeks with no end in sight, the questionable reliability of government wage statistics in Japan and the US; warnings rising about the stability of Europe banks and their non-performing bank loans; and the Fed’s last rate hike coming in March and how it compares to Fed rate levels that precipitated US recessions in 1990, 2001, 2007. Rasmus discusses at length the continuing internal fight among US factions on the US trade team as negotiations get serious with China over trade. How China has increased its offer just prior to high level meetings set for January 30 in Washington by offering to buy $1 trillion more US goods, allow 51% ownership in China, and pass legislation on January 29 to restrict tech transfer. How US Treasury Secretary, Minuchin, has countered with offers to remove all US tariffs. How China hawks in US will try to scuttle a deal again before March 1 deadlines. Why US and China will eventually come to an agreement, Rasmus predicts, due to rapidly slowing economies of both.

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Dr. Rasmus continues discussion of last week’s topic of the causal relationships between debt and financial bubbles, financial asset crashes, and recessions. How defaults (i.e. failure to pay principal and interest on debt as prices and cash flow collapse) play an integrative role in the debt-deflation dynamic as well. Rasmus explains how, when financial markets start contracting, defaults begin to play a role—further exacerbating the downward spiral of all three: debt, deflation, and further defaults. Recapping the main points of last week’s show, emerging potential defaults in the system are reviewed: Sears, JC Penney, and now Macys in the retail sector; General Electric and Ford: UK retailers: EU banks (Deutsche, Commerz, Danske, Italian, Greek banks) and others. Weak points in the US and global real economy (housing, manufacturing, business inventory overbuild), and in the global economy (Germany, France, Italy PMIs), UK, Australia, China slowdown, commodity producing emerging markets, Japan, So. Korea. US stock market’s worst December since 1931. US Junk bond & BBB bonds, leveraged loans, hedge funds, EU banks nonperforming loans. Why central bank monetary policy subsidization of the system failed to generate sustained real growth 2010-16 and why fiscal policy (Trump tax cuts and defense spending) is now having a similar temporary and insufficient effect. The fiction of central bank independence.

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Dr. Rasmus explains the role of debt in generating financial asset price bubbles in 21st century capitalism, and globally since 2008-09 last crisis. How debt may play a positive role in generating real investment or how credit and debt may divert into financial asset markets instead, creating bubbles and eventual financial asset markets deflation. The latter has been increasingly the case in 21st  century global capitalism, creating a growing instability in the system. Where has the debt been going since 2008-09? Households, corporations, and governments. ‘Bad’ debt (fueling financial markets) now exceeds ‘good’ debt (financing real investment in making things, creating jobs, raising incomes). Rasmus explains why there’s an emerging global manufacturing recession underway, as well as declining construction, and how it’s spilling over to tech sector and later will as well to services, creating a recession by late 2019 or early 2020 in the US and globally. How debt acceleration has been responsible for the record levels of stock markets, bonds, foreign exchange speculation, oil and commodities speculation, property prices, etc. from 2010 to 2017. Why those financial asset markets are now all deflating. What will be the causal consequences for the global manufacturing and construction recessions emerging now as well.

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Dr. Rasmus reviews the major economic developments of the past year, 2018, and offers his predictions for 2019. Major topics of 2018 review include: Trump tax cuts, Trump trade war, Fed rate hikes. Obamacare dismantling, US $trillion dollar annual deficits emerge, Emerging Market Economies’ currency crises and recessions, global oil price deflation, UK Brexit, European central bank and Bank of Japan policy shifts, the slowing global economy, and growing financial fragility (i.e. in US junk bonds & leveraged loans, EU banks, non-performing bank loans & stock markets worldwide, China WMPs & entrusted loans, etc.). Areas of potential political ‘tail risks’ that may impact the economy negatively in 2019 are noted. Rasmus then makes 10 economic predictions for 2019: US recession late 2019; US-China trade deal by mid-year; oil prices continue to fall to $30; Fed halts rate hikes; Europe and Japan central banks continue QE policies, UK Brexit talks drag on past deadline; 1st quarter US GDP and job numbers weaken dramatically; US stock markets continue to decline by at least 10% more; emerging market economies crisis abates as Fed rate hikes halt & dollar appreciation slows; and China’s GDP slows below 6%. Rasmus’ political predictions 2019: Trump fires Mueller; budget deficits > $1t lead to new attacks on social security, medicare, and education; US Supreme Court shoots down gerrymandering reform; Democrats’ Beto O’Rourke (the white Obama) runs for president along with Warren, Biden, and other newcomers; Pelosi uses House committees to go after Trump finances & Dems in US House do not initiate Trump impeachment.

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Europe’s economy is stagnating again. Dr. Rasmus reviews the 3 key elements of its growth strategy: (1) free money from its central bank, (2) internal devaluations (aka labor market ‘reforms’) to drive down wage costs to make EU exports more competitive, and (3) fiscal austerity. Rasmus explains how all three are now breaking down as Europe’s GDP recently stagnates at 0.2% for 3rd quarter 2018 reveals and as economic and political problems promise to intensify in 2019 as the global economy slows:  mass street protests in France, populist challenges to Euro austerity rules in Italy, nationalist and separatist movements multiplying, problems with Euro banks (Deutschebank, Italian banks, Credit Suisse, Greek banks, etc.), the European central bank’s just announced suspension of QE bond buying, and the ‘hard Brexit’ looming—all represent the unraveling of Europe’s economic recovery strategy, making it the ‘sick man’ of the global economy as the world (and US economy) slows heading in 2019. Before the discussion, Rasmus provides an update and review of topics of recent weeks, including the prospect of Fed rate hikes, US deficit and debt trends, global oil prices, and the latest developments in the US-China trade war occurring the past week.

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Dr. Rasmus explains the importance of the Yield Curve (currently flattening or inverting) and its role as a predictor of recession in 2019. What causes short term rates to rise while long term rates slow or fall. The Fed’s role in short term rate changes and the global-US economy slowing role in long term rates converging with short term. Why the Fed continues raising (short term) rates but cannot do so more than 1-2 times without provoking a crisis in emerging market economies and causing further slowing of Europe and Japan economies. How Dr. Rasmus’s predictions re. rates, yield curves, and 2019 recession in US since last January now happening.  Why US banks’ business research arms now calling recession 2019 as well (Morgan Stanley). Why critics of yield curve are wrong. Forces converging to produce recession 2019. In the first half of the show, updates on china trade war, global oil price developments, and GM layoffs are discussed—and what’s behind the arrest of Huawei’s Co-CEO, Meng Wangzhou, by Canada at US request?

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Dr. Rasmus speculates on possible outcomes of the Trump-Xi meeting at G20 in Buenos Aires this coming weekend and provides a background history of US-China ‘trade war’ since May 2018; the latest moves of factions within US trade negotiations delegation; and Trump’s failure to get China to the negotiating table. Also, China’s past concession signals and US responses. And the Pence speech at the recent Asia-Pacific conference & US trade representative, Robert Lighthizer’s latest anti-China report released before the G20. Possible tactical outcomes and responses by China & US after the G20 meeting, and ‘wildcards’ that may impact post G20 events (including recent Cohen-Mueller developments). Rasmus next discusses GM’s announcement of 14,000 layoffs and what’s really behind it as GM pressures Trump for more car tariffs and tax credits. The show concludes with discussion of Federal Reserve chair, Powell’s, ‘about face’ this past week on slower further Fed rate hikes, only weeks after signaling in October many more hikes were coming. The Fed’s fiction of ‘neutral’ interest rate and myths about central bank (Fed) independence. (Check out the Rasmus blog, jackrasmus.com, for an excerpt from Rasmus’s forthcoming book, ‘Alexander Hamilton and the Origins of the Fed’, debunking the myth of central bank independence). Next week: Report back on the G20 Meeting and its fallout.

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The NY Times just published the first of a series of articles on China’s economic rise, timed for Trump’s G20 meeting with China president, Xi, next week.  Rasmus comments on the Times article and its focus on an ‘Epochal Contest’ emerging between US and China. While the Times article analysis is mostly anecdotal, Rasmus provides a deeper, historical explanation behind China’s rise since 1983 to a virtual co-equal challenger to the US’s dominant role in the global economy. The US-China current trade ‘war’ is just the ‘tip of the spear’ of the US pushback. Rasmus explains how China’s economic growth has been driven by an infusion of money capital since the 1980s mostly from the US, its integration into the global trading system permitted by the US), and the US willingness to run a massive trade deficit with China to create the US ‘twin deficits’ system using to finance budget deficits (and in turn permit massive US tax cutting and war spending in the 21st century). How China’s rapid growth strategy has been managed, in contrast to the US, with significant government participation (public banks, local government construction projects, domestic and now international infrastructure, a 40% of GDP government investment policy, massive public education and internal immigration, tech transfer from multinational corporations, state owned enterprises, and a focus on fiscal policy as government spending instead of US focus primarily on monetary policy. How China spent 16% of GDP on fiscal spending to recover from 2008, while the US spent 5% (mostly tax cuts and handouts to state governments). China’s latest initiatives in AIIB, One Belt One Road, Yuan approval by IMF, etc. (Next week: The G20 Trump-Xi Meeting and the Real Trade War)

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Dr. Rasmus provides a review of economies worldwide that are appearing to slow: Germany GDP contracts -.02%, Eurozone slows to 0.7% overall. Brexit and Italy may worsen. Japan’s GDP retreats -1.2%. China’s officially at 6.5% (actually closer to 5%). How the central banks and monetary systems now subsidize the capitalist economies. And the most recent decline in global oil prices. Rasmus expands upon his view of ‘what’s financial imperialism?’, previewing his forthcoming article on the topic. And comments on the continuing faction fight within the US trade negotiations team on the China-US trade war. The show concludes with a review of falling financial asset prices globally—oil futures, stock and bond markets, commodity and foreign exchange markets. Emerging defaults at Sears, GE, Europe and India. US government and nonfinancial debt escalation. And trouble spots in junik bonds, BBB corporate bonds and leveraged loans.

 

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Dr. Rasmus evaluates the results of the 2018 midterm elections last Tuesday and the Democratic Party’s ‘Suburbia Strategy’ which produced less than historic average gains in the House of Representatives and major strategic losses in the Senate. The consequences of the now 54 Republican majority in the Senate are discussed—including Trump’s attacks on Mueller and Dems backing off impeachment. Also discussed are the continued voter suppression during the election in key swing states like Florida, Ohio, Georgia, North Carolina, and how Republican governorships remain in firm control in these swing-voter suppression states. The ‘blue wave’ did not materialize, while the tide in the ‘red states’ continued to flow is the main ‘takeaway’ from the election and the picture is more polarization to come. Rasmus critiques the emerging ‘bipartisan lovefest’ between Trump and Pelosi, and the consequences of Democrat bipartisanship under Obama and why it is a trap for Democrats. Why the Democrat party strategy—i.e. suburbia targeting, Russia, and Trump personality—revealed in 2018 midterms, plus bipartisanship, will prove a failure for Dems in 2020 if continued. (For more details of the critique, read Dr. Rasmus’s latest article, ‘None Dare Call It Victory’, at his blog, jackrasmus.com, and other public blogs).

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