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August 3, 2018
What is the truth behind the 2008 Financial Collapse, why was no one prosecuted and how did Obama’s not prosecuting the “banksters” and strengthening Glass Steagal lead to Trump in the White House? Economist Bill Black joins us bring clarity to this mystery


September 19, 2018

The Lehman Brothers bankruptcy was the largest in U.S. history and unleashed a financial meltdown. The Banks were saved but not people’s debt, savings or homes. Michael Hudson looks at the economic instability that we continue to live in

Story Transcript

MARC STEINER: Welcome to The Real News Network. I’m Marc Steiner. Great to have you with us once again.

On September 15, 2008, the financial meltdown began with the bankruptcy of the Lehman Brothers. That was 10 years ago, obviously. The shock waves that hit the economy threw 9 million families out of their homes who could not afford to pay their rising mortgages. So Congress and the president in the 1990s, remember, killed Glass-Steagall, written in 1933 to save us from the excesses of the financial industry. And then Congress gave us Dodd-Frank in the wake of the 2008 crisis that bailed out Wall Street, but not America. And now Trump seems to continue the process with killing Dodd-Frank and completely turning over the keys to Wall Street.

Our guest today says in part we must wipe out debt and not bail out the banks. So with that, let me welcome back to Real News Michael Hudson, research professor of economics at the University of Missouri Kansas City, and a research associate at the Levy Economics Institute at Bard College. His latest book is J Is for Junk Economics. Michael, welcome, good to have you with us.

MICHAEL HUDSON: Good to be here.

MARC STEINER: So let’s start there, with this whole idea of what we did wrong in 2008, why we got it wrong, and what we should have done, from your perspective.

MICHAEL HUDSON: Well, you’re talking about September 15. And if you talked about last weekend, the 10-year anniversary, all that you read in The New York Times and other newspapers was a celebration. We did everything right. We bailed out the banks. There is very little discussion of the fact that this is a disaster for the economy. Nobody has related the fact that we bailed out the banks on their own terms to the fact the economy has not recovered. People talk about a recovery since 2008.

Just to put this whole issue in perspective, almost all of the growth in GDP which they look at is taken the form of higher bank earnings, which they call financial services, meaning penalty fees, late fees, and interest rates over and above the banks’ cost of funds; and rising rents that homeowners would have to pay themselves if they rented instead of owned their homes. And as you’ve had so many- you mentioned 9 million homeowners lost their homes. They now have rent. Rents are rising, debts are rising. The corporate debt, municipal debt, and student debt are way higher now than 2008.

And most of this is because of the way in which President Obama doublecrossed his voters and said, I’m not representing you, I’m representing my donors. And he invited the bankers to the White House and said, don’t worry, folks, I’m the only guy standing between you and the mob with pitchforks. Just like Hillary told Donald Trump supporters, the word that she used, she called his supporters the mob with pitchforks. And he stuck it to them.

In my book Killing the Host, you have Barney Frank saying that he got the agreement of Secretary of the Treasury Hank Paulson to write down the mortgages to the realistic charges; namely, number one, what the mortgage borrowers could afford out of their income, and number two, the carrying charge of the mortgage would be the going rent rate, which is what mortgages historically have tended to.
Obama said, no, I’m representing the bankers, not the debtors. And he appointed bank lobbyists such as Citibank’s Tim Geithner as Secretary of the Treasury. He basically followed everything that President Clinton’s Secretary of the Treasury Rubin recommended to him. He was handed the list of the people that we want to appoint. And he did it, washed his hands of it. And the terms of the bailout- instead of doing what normally happens in a crisis, writing down the debts, and writing off the bad savings and the bad loans as a counterpart to the debts- and instead of taking over the insolvent banks, he kept everything on the books.

There was a big argument in the administration. Surprisingly enough, the good guys were the Republicans in this. Sheila Bair was a Republican from the Midwest, and she said, look, Citibank is not only insolvent, it’s a basically a financial fraud organization. We should take it over. It doesn’t have any money. On the other hand- but Obama said, wait a minute, Geithner is a protege of Rubin, and he’s become head of Citigroup. We’ve got to bail out Citigroup. So what Obama did was take the banks that have been the most fraudulent, that have paid the largest amount of civil fines for financial fraud, and said, these are the banks we want to be the leaders. We’re going to make them the biggest banks, and we’re going to make them stronger. And we’re not going to forgive any loans. We’re going to leave the loans in place, unlike what’s happened for the last few hundred years and crashes.

And so this crash of 2008, it was not a crash of the banks. The banks were bailed out. The autonomy was left with all of the junk mortgages, all of the fraudulent debts. And then to further help the banks recover, the Federal Reserve came in and push quantitative easing, lowering the interest rates so much that banks could make an enormous, the widest profit they ever made in history, between the lending rate on mortgages, 5-6 percent; student loans, 9 percent; credit card loans, 11-29 percent; and the banks’ borrowing charge, which is 0.1 percent. The banks became an enormous problem profit centers, leading these stock market gains.
So they were bailed out. And over the weekend, the newspapers say, look at the wonderful success. The stock market’s up, the one percent are richer than ever before. Let’s look at the good side of things. And there is no analysis at all as to why the economy is not recovering, and whether this failure to recover is a backwash of the way in which the crisis was handled- by bailing out the banks, not the economy.

MARC STEINER: Let me take a step backwards here. First of all, very quickly for us, define quantitative easing.

MICHAEL HUDSON: Quantitative easing is when the Federal Reserve created $4.3 trillion of buying all of the bad debts and the bank assets and creating bank reserves. Essentially it’s like printing money. And it’s printing money, and you’ve heard the phrase ‘money-dropping helicopters.’ But the helicopters only fly over Wall Street. So the Federal Reserve created $4.3 billion on the accounts of the banks, and let the banks get through the fact that they’d made recklessly bad loans, they’ve made reckless losses. Sheila Bair, in her autobiography, wrote about how Citibank was the most mismanaged bank in America. Not quite as fraudulent as Countrywide is, or Bank of America, but simply incompetent by making bad gambles under Prince, who ran the thing. They were bailed out. They were subsidized.

MARC STEINER: Let’s talk a bit about what could have been the alternative. To me that’s what is a gripping story we never wrestled with, nor talk about very much. Right?

MICHAEL HUDSON: Isn’t that amazing. Over the weekend, not a single paper that I know said- there were many alternatives at the time. The alternative that was talked about mainly by Republicans was saying, OK, these mortgages were fraudulently written. That’s why the whole media were using the word ‘junk mortgages.’ They say, we should write down the mortgage to the ability of mortgager to pay, out of 25 percent of their income, or whatever. Or the carrying charge of their mortgage would be the same that they could rent. In other words, if someone’s paying $600 a month, or $1200 a month in mortgage payments, but for $600 a month they could rent out the identical house next door, you reduce the mortgage to the realistic value. Because the banks hired crooked appraisers and their own crooked firms to do false valuations on these loans they made in order to sell them the gullible people, like German [inaudible[

MARC STEINER: So in 2008, some Republicans, along with some economists who were to the left of Wall Street, were talking about bailing out people who were in debt, bailing out people whose mortgages were underwater. Dealing with the question of how much we’re charging for student loans, and kind of either putting a freeze on that, or writing them down. So let’s talk a bit about for a moment what was being proposed that was not paid attention to in 2008 that had to do with more- because one of the things you say, which is a pretty radical notion, which is we should have bailed out the debtors, and not the banks. So let’s start there. What does that mean, and how does that work?

MICHAEL HUDSON: Suppose you had taken the $4.3 trillion, and instead of giving it to the banks to lend out mainly to corporate raiders or to speculators, or to currency speculators, you would have used this $4.3 trillion to take over, buy all of the bad loans at a discount. They could have bought a-

MARC STEINER: Who’s ‘they’? Some of the federal government?

MICHAEL HUDSON: The federal government could have bought the junk mortgage loans in default for maybe a quarter of the value. Let’s say 25 percent, $25,000. This is essentially what Blackstone Realty did, and what private equity people did, buying the foreclosed properties. The governments could have bought from the banks their bad loans. And instead of foreclosing, they’d write down the loans to the realistic market price that the market was pricing the property and the loans at. The inflated housing prices would have been recalculated at the market rate. There would be a lower mortgage, there would be lower interest rates and no penalty payments.

And this $4.3 trillion could have spurred an enormous take off. It could have left the 9 million families that were evicted in place. It could have kept the housing prices low for the country. It could have kept the purchasing power of homeowners available to be spending on goods and services. And the economy would have recovered instead of stagnating. That wasn’t done because the financial sector was running the Democratic Party’s policy and politics, not the voters.

MARC STEINER: So I mean, but they’ve been doing this for a long time. I mean, whether it was President Bush or President Clinton, and going after pieces of Glass-Steagall and finally killing it and the rest, which you can talk about in a minute if we have time today. I mean, but the issue seems to me people would say to you in response, well, what about the banks? That’s where our money is. That’s how we get our loans. That’s who finances small businesses in our community. How can you not bail them out? How can they not be the centerpiece of this, along with us, whose homes are underwater?

MICHAEL HUDSON: Well, just about everybody who listens to this show has their bank accounts guaranteed by the Federal Deposit Insurance Corporation, the FDIC. Sheila Bair was the head of the FDIC. She was leading the advocacy to take over the banks and essentially wipe out their stockholders, because they were holders in a fraudulent organization, wait out the bondholders, and in her autobiography she was opposed. She said, we could have taken over Citibank. Every insured depositor would have had their money.

MARC STEINER: What does it need to take over Citibank? What does it mean to take over the banks, what does that mean?

MICHAEL HUDSON: That means when there is, when the bank is insolvent, the government takes it over at a price that- to cover the deposits [inaudible] for the bondholders.

MARC STEINER: So one more time for us. So you’re saying- so taking over the banks would have guaranteed who, and not the bondholders?

MICHAEL HUDSON: It would have guaranteed the depositors. There was enough money in Citibank, even though it was crooked, even though it was incompetently managed, even though we know that it’s paid tens of billions of dollars for fraud. It would have wiped out the big speculators. But all of the depositors, the bread and butter users, would have been paid. The same for all the other banks. No depositor would have lost. But the bondholders would have lost, because other banks essentially would have used their money to pay the depositors and to stay in business, not pay the owners of the banks, who were owners of a crooked organization.

MARC STEINER: So where does the money come from, then, to invest in infrastructure, in new businesses, and whatever else has to be invested in?

MICHAEL HUDSON: Well, banks don’t invest- banks, that’s the myth. The pretense is that rescuing the banks rescued the economy. But the banks don’t make loans to the economy. Banks don’t make loans to fund factories. They don’t make loans for infrastructure. They make loans to buy assets already in place. They’re privatizing the structure to take it private, raise the rates the people have to pay. Essentially the same thing is taking over corporations. They won’t help a corporation put in more equipment and hire more people, but they’ll lend to a raider to break up a corporation, downsize the labor force, smash it up and leave it a bankrupt shell. That’s the financial management plan. That’s what they teach in business schools. And the idea that bailing out the banks helps the economy- the fact is that the economy today cannot recover without a bank failure, because if you-

MARC STEINER: Let me stop you right there, before we go on. Let’s examine that before we have to close. So what do you mean by that? What do you mean, the economy cannot let- without a bank failure? What does that mean?

MICHAEL HUDSON: That means that the banks hold the student loan debt, the mortgage debt, the credit card debt. If you leave all of this debt in place, people will have enough money after paying their monthly nut, after paying their banks, their mortgage payments, their housing payments, all of the monthly stuff, there’s not enough money to buy the goods and services that they produce anymore.

So the economy is shrinking. You’ve seen a lot of stories, international and national chains going out of business. You’ve seen whole streets of New York City being basically- half the stores are empty. Nobody’s in them. The economy’s not recovering, it’s limping along. And it’s what is called debt deflation. And again, my book Killing the Host describes how all of this was described in the 1930s. It’s a well-known phenomenon. But nobody talking about the rescue was saying, wait a minute, what was rescued was the volume of debt, instead of writing it down like you did in the 1930s.

So essentially we’re not in a recovery at all, and we can’t get into recovery until you write down the debt. Otherwise you’re going to have the economy looking like Greece. You’re going to have austerity. So basically we’re on an austerity budget now, not so much because of tax policy, but because of the debt overhead that is owed to the banks and other major creditors.

MARC STEINER: So we’re here talking to Michael Hudson, and it’s a fascinating conversation about what could have been, and what is not. We’re going to come right back to finish this conversation with Michael Hudson here on The Real News Network to briefly talk about what it is we can do, and where we are at this moment. Stay with us.


September 23, 2018
Economists Mark Weisbrot and Gerald Epstein face off to discuss whether 10 years after the Lehman Brothers collapse and the Great Recession of 2008 we are about to see another major financial crisis  

Story Transcript

SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Here at The Real News, we have been covering the ten-year anniversary of the great financial crisis of 2008. We are, of course, trying to pursue a series of analyses on the lessons learned from that momentous event. We are now turning today to look forward, looking at analysis of whether we can expect a repeat of that crisis in the foreseeable future. Now, some institutes, such as The Democracy Collaborative founded by Gar Alperovitz, recently issued a detailed analysis predicting that there will be another global financial crisis and that it will probably be even worse than the one that took place in 2008. In fact, they have a strategy lined up as far as what we should do when that crisis hit. It’s worth taking a look at, and we’ve done some interviews here on The Real News on that topic as well. So, do look that up.
Now, on the other hand of all of this, we have others, such as Dean Baker of the Center for Economic Policy and Research, who just published a paper titled, The United States is Not on the Brink of a Financial Crisis. And he and his colleague, Mark Weisbrot, were among the few economists who actually predicted the last crisis. So, joining me today to discuss these perspectives on the likelihood of another crisis are Professor Gerald Epstein and Mark Weisbrot. Jerry is co-director of the Political Economy Research Institute and professor of economics at UMass Amherst. Good to have you with us, Jerry.

GERALD EPSTEIN: Thanks, Sharmini. Hi Mark.

SHARMINI PERIES: And Mark is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of Failed: What the “Experts” Got Wrong about the Global Economy. Thank you both for joining us.

MARK WEISBROT: Thanks, Sharmini.

SHARMINI PERIES: I’m going to start off with letting each of you stake out your positions on this. So, let me start with you, Jerry, first. Is the U.S. and the global economy on the brink of a new financial crisis?

GERALD EPSTEIN: Well the brink’s a strong word. I think it’s hard for anybody to predict a brink. But I think there are worrying trends, both in the United States and in the global economy in terms of financial problems. Let me point out that economic historians have shown that there are financial crises somewhere in the world every seven or eight years throughout the history of capitalism. So, it’s unlikely that we’re not going to have other financial crises. I think the real question, of course, is whether we’re on the brink of a financial crisis of this severity and of the type we just saw in 2008. And those kinds of financial crises, historically, are actually quite rare.
So, it would be quite surprising if we were on the brink of a financial crisis like that. Now, what I think is that there are serious financial problems that are building up and that the policies undertaken after the last crisis were not sufficient to solve these problems. And in fact, many of them were just swept under the rug and not looked at at all. So, what are some of the of the disturbing trends? First of all, debt levels in the United States and in many parts of the world; business debt, household debt, et cetera, are at the highest levels we’ve ever seen as a share of GDP or national income. So, debt, which is a vulnerable factor in financial crises, is certainly way up there.
Second of all, a lot of the financial practices that contributed to the financial crisis are still going on; the writing of derivatives and collateralized debt obligations, the borrowing and lending by the shadow banking system. All of these things are going on and those have not stopped. So, I think there a lot of worrying trends, and perhaps the most worrying is that the financial regulators, particularly in the United States, under the sway of Trumpian economics and the Republican Party and the Wall Street-friendly Democrats, are dismantling a lot of the regulations that were put in place. And so, there’s not much of a cop on the block anymore. So, I think all of these things make it more likely that we’re going to have a serious financial crisis but saying we’re on the brink is probably too strong.

SHARMINI PERIES: All right. Mark, what’s your take on what Jerry just said, and as well as do you think we are on the brink of a new financial crisis?

MARK WEISBROT: Well, if the framework we’re looking at is the whole world, then we do already have financial crises in places like Argentina and Turkey. You have a big falloff in the emerging market stock index. And you have these crises resulting partly from the Federal Reserve raising interest rates here. This is similar to what you had when the Fed doubled the interest rates between 1994 and ’97. You had crises in Argentina, Brazil and Mexico, in Asia, including Indonesia, Malaysia, the Philippines, South Korea. You had Russia as well in ’98. And so, all of this spread through the behavior of market participants who just looked around and picked the country they thought was going to be next and pulled out of there, caused the crisis by the sudden stop of capital flows.

So, something like could happen as the Fed continues to raise interest rates, especially for the more vulnerable countries, those that have a lot of debt. But again, some countries will be innocent bystanders and be sucked into it. And I think this is a real problem and it’s also a problem for the United States. The Federal Reserve has caused all of the recessions we’ve had in the United States, except for the last two, by raising interest rates. And if they continue to raise interest rates, as they’ve done five times since 2015 unnecessarily, they will eventually slow this economy and maybe push it into recession.
But if we’re talking about now, we’re comparing to the tenth anniversary of the last- the media calls it a financial crisis- but we compare it to the Great Recession, which I think is a better way to describe it, we’re not seeing any bubbles, for example, that could cause that. The housing bubble was very evident at the time. You had a huge runup of construction, and when that collapsed we lost four percentage points of U.S. GDP. And people were spending often at the increase in wealth, they were borrowing against their means. And they were spending, and the savings rate collapsed two and a half percent. I think it was a record low in 2005. And that was very evident as well.
And together, those two shocks, the collapse in the consumption that you got of the wealth effect of losing eight trillion dollars in housing wealth and the four percentage points of the GDP, that’s what caused the Great Recession. It wasn’t the result of the financial crisis, of any financial crisis. And I think that’s very important. That’s widely misunderstood throughout in the media, and as a result, I think people have a lot of misunderstandings about what to do going forward and where we are right now in terms of facing the threat of a Great Recession. And that’s not to dismiss what Jerry said about regulatory concerns and the fact that we didn’t fix a lot of what we needed to fix in terms of financial regulation. We don’t have any bubbles like the one that we had in 2006, 2007, or even like the stock market bubble that we had in 2000.

SHARMINI PERIES: All right. Now, it appears that both of you agrees that it is the nature of our economies, or capitalism, that there are crises in some part of the world somewhere at any given moment. Now, Leo Panitch has also written about this, he wrote a book called In and Out of Crisis. And as I mentioned off the top, Gar Alperovitz also predicts such crises is pending. Now to talk about it might happen or it is happening somewhere in the world like Argentina or what we experienced even in Turkey these past few months is one thing. But it’s another thing to be waiting in the United States and on the brink of that these kinds of crises may trigger another financial crisis in the U.S. Is there any possibility of that happening, Jerry?

GERALD EPSTEIN: Yeah, sure. I mean, let me respond to some things that Mark said. I certainly agree with a lot of what he said. But to step back a bit, we look historically at the causes of financial crises, there’s been a lot of research done on this by economic historians like Charles Kindleberger who wrote the great book, Manias, Panics, and Crashes, Hyman Minsky. More recently, a lot of empirical work done by economic historians like Alan Taylor, Moritz Schularick and others. And what’s pretty clear is that financial crises, and very serious ones, come in all varieties. Not all financial crises are started by bubbles. Bubbles, asset bubbles like we saw with the housing market and other stock market bubbles, or South Sea bubbles, tulip bubbles, these are all things that can start a financial crisis and have started financial crises.
But you can have pretty serious financial crises without bubbles, historically. And so, I think it’s not sufficient to say, as I think Mark suggested and maybe Dean has suggested, that, “Well, there’s no bubbles out there right now, so we can’t have a major financial crisis. That doesn’t necessarily follow if you look at the historical record. Financial crises are caused fundamentally by debt structures, or one of the main causes of financial crises is businesses and people and governments taking on a lot of debt and expectations feature income and revenues that don’t materialize for some reason or another. And it gets worse if the financial system buys and sells and insures these types of debt throughout the financial system.
And if one institution fails and if they’re complexly integrated with each other, then that can bring down more financial institutions and other institutions. And then, you have a big problem. And the problem now is that, perhaps Mark is right that we don’t have any obvious bubbles right now, that the global financial market has become incredibly interconnected with all kinds of derivatives, the same sorts we saw before and even more complex, the whole shadow banking system that isn’t regulated and we don’t know much about. This is generating lots of interconnectedness, lots of complexity. And so, there’s a lot of danger lurking in there and the absence of a bubble does not guarantee us the absence of a major financial crisis. So, I would be a little more worried than it sounds to me like Mark and perhaps Dean are.

SHARMINI PERIES: All right, Mark. Let me give you an opportunity to respond to Jerry.

MARK WEISBROT: Well, I’m not going to say it’s never going to happen some years from now if some large unsustainable debt burden were to grow, for example, in the business sector, then that would be a different story. But we don’t really have that now. And so, I think that there does have to be something. You can see if it’s a crisis that’s going to cause something like the Great Recession or the prior recession or any of the deep recessions prior to 2000, we would see it. The most likely cause of the next recession, if we’re looking ahead and just doing a baseline projection for right now, barring some real trade war, for example, is it is much more likely to be the Federal Reserve raising interest rates until it slows the economy enough to cause a recession. That’s what we’re looking at as the greatest threat right now.
There’s no financial imbalance of the sort, including the business sector borrowing. A lot of that was just borrowing because interest rates were very low, so corporations locked in debt at very low interest rates. It wasn’t borrowing because they were in trouble of any sort. So, these are not the material of crises. That doesn’t mean they won’t be three or four years from now, even further. But if we’re looking at it right now, you don’t have anything that we can point to as something that will cause a crisis in the foreseeable future other than, again, the threat of the Federal Reserve.


GERALD EPSTEIN: Well, I hope you’re right. I think that would be a good thing. And it is true, I agree with you Mark, that the Federal Reserve excessively increasing interest rates is both unnecessary and dangerous from this regard. But let’s not forget- and you know this as well or better than I do, that in 1982, with the so-called Third World debt crisis, there weren’t any obvious signs of problems here in the United States. But unbeknownst to many of us, the thirteen major commercial banks in the U.S. were lending much more than their capital to a set of eight or nine developing countries. And when problems developed there, in Mexico and Argentina and so forth, that almost brought down the U.S. financial system.

So, the problems do not have to emanate from here to kick back and create a crisis here, because our financial institutions are at the center of the global financial system. Major interconnected problems that start elsewhere can boomerang back and affect our financial institutions. Now, the question then is what you’ve been writing about, and Dean and others, well if that happens, what should we do about it? Should we bail out the banks again and bail out the bankers? And that’s where the interesting question is. And I think that’s where the work by the Democracy Collaborative that you referred to is very interesting, because they’re saying no, we should nationalize the banks at that point and then move on from there. So, I agree with their perspective on that.

SHARMINI PERIES: So, Mark, how do you respond to Jerry’s argument that of course deregulation, combined with increasing, unpayable debt burdens make a crisis practically inevitable in spite of not having a bubble?

MARK WEISBROT: Well, it depends what you mean by inevitable. At some point, yeah, there is definitely a tendency, there’s a boom-bust, there’s a business cycle. And there are financial cycles as well, as Jerry referred to at the beginning, referring to Minsky and Kindleberger and others. You have cycles, of course. But the question is where we are right now, and there isn’t any unsustainable business that that would cause it. And in terms of the crisis coming from other countries and tanking the U.S. economy, I don’t see that. Jerry is absolutely right about the threat to major banks in the 1980s from the lending that they had. But I don’t see anything like that today.
In fact, I remember in the midst of the Asian financial crisis, Alan Greenspan made a statement. He said, “How long had the United States economy be an oasis in a sea of financial crises?” Something like that, saying that this would you know eventually hit the U.S. And it never did. In fact, the answer question was, the U.S. could continue to grow quite well until our own stock market bubble burst 2000. So, I think the structure of the world is different now than it was in the 80s, and even in the late 90s, of course, that was a series crisis to many countries; the Asian crisis, I mentioned Latin America and Russia. And the U.S. economy plowed through all the way and was not affected.

SHARMINI PERIES: All right, Jerry, we will have to leave it there soon, but let me give you the last word.

GERALD EPSTEIN: I think the major problem is that we don’t really have enough information to know whether Mark’s right or whether I’m right. I’d like to believe what Mark is saying, and Mark has done a lot of research on a lot of these topics. But a major problem with the lack of follow-up after the financial crisis is that the regulators and the banks and the financial markets are still shielding information from hedge funds, from private equity firms, from global security markets, the so-called shadow markets. We don’t know what dangers really are building up out there. And so, we need to demand to get this information so that we can make a more informed assessment.

SHARMINI PERIES: That triggers something. Jerry, the fact that even though we had Dodd Frank, half of the regulations that needed to be put in place from Dodd Frank was never done. And further, the Trump administration has come in and further deregulated the environment. Do you think these steps would trigger something that we should worry about?

GERALD EPSTEIN: Well, some of them could. I’m particularly thinking of something Michael Greenberger, who’s an expert on derivatives and has been writing about it at the INET website, among other places, talking about a very arcane loophole that has been exploited by the major writers of credit default swaps and other derivatives, so that they are now able to escape all regulation from Dodd Frank. And as we know, these credit default swaps and so forth are things that spread the collapse of the housing bubble through the financial system. So, now they’re able to build up all kinds of derivatives positions globally.
And I know that Michael Greenberger, who’s an expert on this, is quite worried that this is leading to the buildup of a lot of interconnected, complex risks in the global financial markets, just another example of how the ability to evade the rules of Dodd Frank and the absence of other rules in Dodd Frank, making it easy for them to hide risks around the global financial markets.

SHARMINI PERIES: All right, then. Mark, I have to get to respond to that before we can go.

MARK WEISBROT: Oh, well I- again, I don’t write off the idea that there will be future financial crises, and some of them could come from places we don’t see that clearly right now. But that sure wasn’t true in the last two major crises we had. Both of those were painfully visible for years before the bubbles burst. And again, I’m not saying all financial crises result from bubbles, but you could see it from the impact of the bubble. So, for example, you could see that the housing bubble was driving consumption in the U.S. and you could see all the signs that it really was a bubble, even though most of the media, almost all the media missed it entirely.
You could see that rents, for example, weren’t rising and vacancy rates were rising. You could see all of these things, they were big and obvious, and you could see the same thing in the stock market bubble that burst 2000. So, it is, again, it is possible that there are things we don’t see right now because of poor regulatory structures that will eventually become a visible problem, not just a visible problem, but a visible threat to the economy, a serious threat. All I’m saying is that those serious threats are not visible now.

SHARMINI PERIES: All right. That was Mark Weisbrot from the Center for Economic and Policy Research in Washington, D.C. And we were also joined by Professor Jerry Epstein from the Political Economy Research Institute at UMass Amherst. I thank you both for joining us today.

MARK WEISBROT: Thank you, Sharmini.
SHARMINI PERIES: And thank you for joining us here on The Real News Network.



Italy’s deputy PM Di Maio, who has already irked Paris by backing the Yellow Jackets, is now denouncing French colonialism. That impression was reinforced by support for the anti-French outbursts from Prime Minister Giuseppe Conte, who said it is "legitimate to question the effectiveness of our foreign policies," and Foreign Minister Enzo Moavero Milanesi.

Gaddafi's gold
Di Maio was alluding to the CFA franc, two currencies used mainly by former French colonies in Africa that are pegged to the euro, with the financial backing of the French treasury. In exchange, the French treasury holds half the foreign currency of these 14 countries, which critics say hinders economic development. Vito Petrocelli, the 5Star president of the Italian Senate's foreign affairs committee, attempted to explain the rationale behind Di Maio's comments by referring to U.S. diplomatic cables from WikiLeaks. 

Libyan dictator Muammar Gaddafi was plotting to replace the CFA franc with a pan-African currency backed by Libyan gold, according to a leaked U.S. diplomatic cable from 2011. The invasion of Libya by Western allies put an end to that plan and destabilized the country, contributing to the migration chaos whose consequences have been mainly borne by Italy, he said.   "Luigi Di Maio had the courage to lift the veil of hypocrisy which hid the scandalous system of the CFA franc," said Petrocelli.

In reality, most migrants who arrive in Italy originate from countries such as Tunisia and Eritrea that don’t use the CFA franc. Among the top 10 countries of origin for refugees arriving by sea in Italy in 2018, Ivory Coast is the first country using the CFA franc to appear, at No. 8, according to UNHCR figuresGodwin Chukwu, founder of the Federation of the African Diaspora in Italy, said Italy should remember its own colonial past in Somalia, Ethiopia, Eritrea and Libya, adding: "Di Maio and Salvini cannot give lessons to France."

Chukwu cited Di Maio's promise to Italian voters that foreigners would not be eligible for the 5Stars' flagship campaign promise of a basic citizens' income. "Africa is here in Italy but the minister cares nothing for these poor people," he said.

For Raffaele Marchetti, professor of international relations at Rome’s Luiss University, the diplomatic spat between Rome and Paris is the result of long-term economic and military frictions between Italy and France that have been exacerbated by the immigration crisis.
On top of that, inflammatory language attracts votes, and ahead of May's European election the 5Stars are keen to burnish their anti-establishment credentials by taking a pop at capitalist institutions to win support from the left and take a hard stance on migration to gain favor with the right.  "Show voters you are dealing with migration and you will be rewarded," said Marchetti.

Karaoke night
With the 5Stars looking for potential allies in the European Parliament after the May election, attacking France's Africa policy is also a way of reaching out to the Yellow Jackets by showing a shared agenda: abolishing the CFA franc is one of the activists' demands.  Standing up to the French will also go down well with the domestic audience, said 5Star activist Massimo Lazzari. Di Maio "is trying to get back some votes we have lost," he said, adding that Italy has been too acquiescent with the major European powers in the past.

"We have to defend ourselves. France treats Italy as a colony, economically and illegally sending back child migrants. Previous governments allowed this to happen. We push back," said Lazzari.

"These comments will increase divisions with France and leave Italy more marginalized" — Raffaele Marchetti

While there may be short-term electoral gains, opposition parties point out the danger of running foreign policy like an election campaign. The situation is "getting out of hand," said former Prime Minister Matteo Renzi from the center-left Democratic Party: ‘The damage to the credibility of Italy and its relations with its historic friends is huge. Foreign policy is serious, it’s not amateur karaoke." Alessandro Alfieri, a Democratic Party senator on the foreign affairs committee, pointed out that France had supported Italy against the threat of EU sanctions over the 2019 budget. "We are witnessing a radical change in foreign policy, which betrays our national interests," he warned.

Long term, such attacks are likely to leave Italy more isolated in Europe. "These comments will increase divisions with France and leave Italy more marginalized," said Marchetti at Luiss University.

The global winners here in Switzerland aren’t so sure they’re up to the task of running the world anymore.
John Harris

At Davos, Switzerland every year the global capitalist elite gather to party…and to prepare for the year ahead. This year more than 1500 private jets will reportedly fly in. Thousands more of their underling staff will travel via business class to handle their personal, and corporate, logistics. Shielded from the media and the pubic, the big capitalists share views in back rooms and listen to experts on finance, government policy, technology, and the economy. The experts are especially probed to identify and explain the next ‘black swan’ or ‘gray rhino’ event about to erupt. Wealthy celebrities are invited to entertain them as well after evening dinner and cocktails. But the real networking goes on privately afterwards, in small groups or one on one, among the big capitalists themselves or in private meetings with heads of state, finance ministers, and central bank chairmen.

Typically each annual meeting has a theme. This year there are several: the slowing global economy, the fracturing of the international trade system, the growing levels of unsustainable debt everywhere, volatile financial asset markets with asset bubbles beginning to deflate, rising political instability and autocratic drift in both the advanced and emerging economies, accelerating income inequality worldwide—to mention just a short list.   On the eve of this year’s World Economic Forum gathering, some of the most powerful, wealthy, and more prescient capitalists have begun to speak out to their capitalist cousins, raising red flags about what they believe is an approaching crisis.

Ray Dalio, the billionaire who found and manages the world’s biggest hedge fund, Bridgewater Associates, warned that he and other investors had squeezed financial markets to such “levels where it is difficult to see where you can squeeze” further.  He publicly admitted in a Bloomberg News interview that, in the future profits will be low “for a very very long time”. The era of central banks providing free money, low rates, and excess liquidity have run their course, according to Dalio. He added the global economy is mired in dangerously high levels of debt, comparing it to the 1930s.

Paul Tudor Jones, another big finance capitalist, similarly warned of unsustainable debt levels—created by companies binging on cheap credit since 2009—that “could be systemically threatening”. Not just government debt. But especially corporate debt, where levels in the US alone have doubled to more than $9 trillion since 2009 (most of it high risk ‘junk bond’ and nearly as risky ‘BBB’ investment grade corporate bond debt).

Almost as worrisome, one might add, is the now more than $1 trillion leverage loan market debt in the US (i.e. loan equivalent of junk bonds). US household debt is also now approaching $15 trillion. And US national government debt, at $21 trillion, is about to surge over the next decade to $33 trillion due to the Trump 2018 tax cuts. And that’s not counting trillions more in US state and local government debt; or the tens of trillions of new dollarized debt undertaken by emerging market economies since 2010; or the $5 trillion in non-performing bank loans in Europe and Japan; or the even more private sector debt escalation in China.

Corporate debt levels are not alone the problem, however. Debt can rise so long as  financial asset prices and real profits do so—i.e. provide the cash flow available to service the debt. But when profits and asset prices (of stocks, bonds, derivatives, currency exchange rates, commodity futures, etc.) no longer rise, or start to turn down, then debt service (principal & interest) cannot be repaid. Defaults often follow, causing & investor confidence to slide. Real investment, employment, and household incomes thereafter collapse, and the real economy is dragged down in turn. The real decline further exacerbates the collapse of financial asset prices, and precipitates a mutual feedback of financial and real economic collapse.

And financial markets began to deflate in 2018; and it is now becoming increasingly clear that the real side of the global economy is slowing rapidly as well.  In February 2018 the first early warning appeared for financial markets. Stocks plunged in the US, Europe and even China. They temporarily recovered—a ‘dead cat bounce’ as they say before an even deeper decline in the fall. Then oil and commodity futures prices collapsed by 40% or more in late summer-early fall 2018. Stock markets followed again in October-December 2018 by 30-40% in US, China, Europe, and key emerging markets. Key merging market currencies—Argentina, Turkey, Indonesia, Brazil, South Africa—all fell precipitously as well. And housing prices from the UK to Australia to China to New York began to implode as the year ended.  In January 2019 stock markets recovered—i.e. a classic, short term, bull market recovery in what is today’s fundamentally long term global bear market.

Dalio’s and Jones’ worries by unsustainable debt and pending crisis have started to become real, in other words. Becoming real as well is evidence of emerging defaults, a critical phase that typically follows asset markets’ decline and slowing profits. In the US there’s the Sears default, with JCPenney in the wings. And the giant corporation, once the largest in the world, the General Electric Corp., slouching toward default. Its global profits slowing and stock price imploding, GE is now desperately selling off its best assets to raise cash to pay its excess debt. It’s not alone. Scores of energy companies involved in US shale oil and gas production are teetering on the brink.  In Europe, there’s deepening troubles at Deutschebank, and just about all the Italian banks, and UBS in Switzerland, and the Greek banks.  In Japan, there’s trillions of dollars in non-performing bank loans as well, which Japan’s central bank continues to cover up. And then there’s China, with more than $5 trillion in bad loans held by local governments, by shadow bankers, and by its state owned enterprises that the China central bank and government keep bailing out by issuing ‘trusted loans’ (i.e. equivalent of junk bonds in US).

Default cracks have begun to appear everywhere in the global economy, in other words, major indicators that the excess debt accumulation and financial bubbles of the past decade cannot be ‘serviced’ (principal-interest paid) and have begun to negatively impact the global economy.  What’s becoming clear is that the next crisis will not emerge from the housing sector with excess debt and price bubbles driven by subprime mortgage loans and related financial derivatives.  What’s more likely is that the next crisis will emerge from debt defaults and collapsing real investment by non-financial corporations.  Moreover, the tipping point is nearer than most in business or media will admit.

Trump’s 2018 tax cuts simply threw a veil over the real condition of corporate performance in the US this past year. The tax cuts provided a windfall, one time subsidy to corporations’ bottom line. It is estimated that US S&P 500 corporations’ profits were boosted 22% by the Trump windfall tax cuts alone. Since S&P 500 profits for 2018 were roughly 27%, it means actual profits were barely 5%.  That’s the real situation going into 2019—a condition that assures US stock markets, junk bond markets, and leveraged loan markets in particular will experience even greater contraction in 2019 than they did in 2018. The bubbles will continue to pop.

In the global economy, it is even more evident that by the end of 2019 it is likely there will be  recession in wide sectors of the real global economy amidst further asset markets’ price declines. In Europe, the growth engine of Germany is showing sure signs of slowing. Manufacturing and industrial production in the closing months of 2018 fell by 1.9%. After a GDP decline in the third quarter 2018, another fourth quarter 2018 German contraction will mean a technical recession. Equal to at least a third of all the Eurozone economy, as goes Germany goes Europe. France and Italy manufacturing are also contracting. Nearly having stagnated at 0.2% in the third quarter, the Europe economy in general may have slipped into recession already. And all that before the negative effects of a UK Brexit or an Italian banks’ implosion or deepening protests in France are further felt.

In emerging market economies, the steady rise of the US dollar in 2018 (driven by rising US central bank interest rates) devastated emerging market economies across the board. Rising dollar values translated into corresponding emerging market currency collapse. That triggered capital flight out of these economies, and their falling stock and bond markets in turn. To stem the outflow, their central banks raised interest rates, which precipitated deep recession in the real economy, while their collapsing currencies generated higher import prices and general inflation in their economies as well. That was the story from Argentina to Brazil to Turkey to South Africa and even to Asia in places.

The US halting of interest rate hikes in 2019 may relieve pressure on emerging market economies somewhat in 2019. But that easing will be more than offset by China’s 2019 economic slowdown now underway. In the second half of 2018 investment, consumer spending, and manufacturing all slowed markedly in China.  Officially at 6.6% for 2018, according to China statistics, China’s real economy is no doubt growing less than 6% due to the methods used to estimate growth in China. Its manufacturing began to contract in late 2018, and with it a significant slowdown in private investment and even consumer spending on autos and other durable goods.  China’s slowing will mean less demand for emerging market economies’ products and commodities, including oil and industrial metals. A respite for emerging market economies from the US dollar rising will thus be offset by China slowing.

When both financial asset markets and the real economy are together slowing it is a particularly strong ‘red flag’ warning for the economic road ahead.  And more contractions in stocks and other financial assets, together with slowing of manufacturing, housing, and GDP in Europe, US, and Japan in 2019, are likely which means trouble ahead in 2019.

Along with all the data increasingly pointing to financial asset deflation gaining a longer term foothold—and with real economy indicators like manufacturing, housing, GDP, exports as well now flashing red—there is also a growing list of political hotspots and potential ‘tail risks’ emerging in the global economy. Some of the ‘black swans’ are identifiable; some yet to be.

In the US, the government shutdown and the prospect of policy deadlock between the parties for two more years could qualify as a source of further economic disruption. In Europe, there are several ‘tail risks’: the Brexit situation coming to a head in April, the challenge to the Eurozone by the new Italian populist government, the chronic and deep street protests continuing in France, and the general rightward social and political drift throughout eastern Europe. In Latin America there’s the extremely repressive policies of Bolsonaro in Brazil and Macri in Argentina, which could end in mass public uprisings at some point.  In Asia, there’s corruption and scandals in Malaysia and India. And then there’s the US-trade war with China, which some factions in the US are trying to leverage to launch a new Cold War. Not least, there’s the potential collapse of negotiations between the US and North Korea that could lead to renewed threats of military conflict.  All these ‘political instabilities’ , given their number and scope, if left unresolved, or allowed to worsen, will have a further negative effect on business and consumer confidence—now already slowing rapidly—and in turn investment and therefore economic growth.

Ray Dalio’s and Tudor Jones’ warnings on the eve of Davos have been echoed by a growing list of capitalist notables and their government servants and echoes. IMF chairperson, Christine Lagarde, has been repeatedly declaring publicly that global trade and the economy are slowing.  Reflecting Europe in particular, where exports are even more critical to the economy, she has especially been warning about a potential severe US-China trade war disrupting the global trading system—and global economy in turn. The IMF has been issuing repeated downward adjustments of its global economic forecasts. So too has the World Bank. As have a growing number of big bank research departments, from Nomura Bank in Japan to UBS bank in Europe. Former US central bank chairs, Janet Yellen and Ben Bernanke, have also jumped in and have been raising red flags about the course of the US and global economies. Former Fed chair, Greenspan, has even declared the US is already on a recession path from which it can’t now extricate itself.

Given all the emerging corroborating data, the red flags and warnings about the current state of the global economy, and the growing global political uncertainties, the Dalios, the Jones, and others among the Davos crowd are especially worried this year.  On the eve of the Forum’s first day on January 23, 2019, a leading discussion topic among the cocktail parties is the buzz about the just leaked private newsletter from billionaire Seth Klarman, who heads one of the world’s biggest funds, the Baupost Group.  In his newsletter leaked to the New York Times, and widely circulated among early Davos crowd attendees, Klarman reportedly chides his readers-investors about not paying more attention to the social and political instabilities growing worldwide, about Trump’s direction which is “quite dangerous”, and the US in effect retreating from global leadership, leaving a dangerous vacuum behind. Investors have also become too complacent about global debt and risk levels now rising dangerously, he argues. It could all very well lead to a financial panic, he adds. The US in particular is at an ‘inflection point’. He ominously concludes, “By the time such a crisis hits, it will likely be too late to get our house in order”.

The recent statements by Dalio, Tudor Jones, Klarman, and the others reminds one of the last crisis and crash of 2008. When Charlie Prince, CEO of Citigroup, the biggest bank at the time, was asked after the crisis why he didn’t see it coming and do something to avoid the toxic mortgage-derivatives bomb and protect his investors and customers, Prince replied he did see it coming but could do nothing to stop it. His investors and customers demanded his bank continue—like the other banks were—investing in subprime mortgages, lending to shadow banks, selling risky derivatives and thereby continuing to make money for them, just as the other banks were doing. Charlie’s response why he did nothing to stop it or prepare was, ‘when you come to the dance, you have to dance’.

No doubt the Davos crowd will be partying and dancing over the next several days in their securely gated, posh Switzerland retreat. After all, the last ten years has increased their capital incomes by literally tens of trillions of dollars. And capitalists are driven by a mindless herd mentality once they’ve made money. They believe they can continue doing so forever. They believe the money music will never stop. One can only wonder, if they’ll be dancing later this year to the same song as Charlie’s in 2008.

Dr. Rasmus is author of the book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, and the forthcoming ‘The Scourge of Neoliberalism: US Policy from Reagan to Trump’, 2019. Jack hosts the Alternative Visions radio show on the Progressive Radio Network. 


As we approach 2019 the global economy teeters on the brink of yet another recession which will plunge geo-political relations into a period of great upheaval and rapid change. In 2019 global stock markets will continue to face unprecedented volatility and gigantic losses as the Ponzi scheme pumped up by the cartel of central banks comes crashing down. 
The central bank cartel of the U.S. Federal Reserve, European Central Bank, Bank of Japan, and Bank of England together with the Bank of China have flooded their national economies with astronomical sums of money since 2008 in an attempt to stave off collapse of the global financial system. Their money printing experiment has driven global debt from $177 trillion to over $277 trillion today while interest rates have been artificially suppressed enabling a wealth transfer to the 1% of historic proportions. This massive expansion of central bank balance sheets is illustrated below.

During this period global stock markets surged to new historic heights pumped up as they were by the financial heroin provided by the central bank cartel. The chart below clearly illustrates the correlation between the tremendous growth of the S&P 500 and the money printing by the central bank cartel.  Now the chickens are coming home to roost as the global economy slows down and the central bank cartel tries to end their money printing colloquially known as Quantitative Tightening. The withdrawal of this financial heroin is behind the collapse of global stock markets during 2018 that has wiped trillions off the values of a range of inflated assets.

There is a very clear correlation between the shrinking balance sheets of global central banks and the continuing crash of stock markets. The collapse of the stock values of globally systemic banks poses great dangers to the global economy. The central bank cartel policies of quantitative tightening, as they attempt to wean financial markets off their monetary heroin, are taking us towards a period of stagflation, reminiscent of the 1970s, which will usher in a period of depressed economic growth and rising inflation. Geo-political relations, as in the 1970s period of stagflation, will become even more unstable and volatile intensifying many current conflicts and threatening new wars between nations and military blocs.

The next world recession will pose severe challenges for the great powers as they jostle to maintain control over strategic raw materials, trade relationships and economic resources. Meanwhile, the great powers will struggle to cope with the devastating consequences of the collapse of inflated assets from bank failures to the return of mass unemployment. They will all face unprecedented social and political upheaval from their own citizens suffering from the effects of economic collapse.  One thing we can be sure of is that 2019 will be very different to 2018 and the years that have gone before as nations struggle to redefine their political and economic relations with one another.


This week Trump released his latest budget for 2019-20 fiscal year. It calls for $2.7 trillion in various social spending cuts over the decade, including $872 billion in reductions in Medicare, Social Security, Disability spending; another $327 billion in food stamps, housing support, and Medicaid; a further $200 billion in student loan cuts; and hundreds of billions more in cuts to education, government workers’ pensions, and funds to operate the EPA and other government agencies.

Not surprising, the $2.7 trillion in social program spending cuts will finance spending for the military and defense related programs like Homeland Security, Border walls, veterans, police, and programs like school vouchers. Of course, the budget proposal is ‘dead on arrival’ with the US House of Representatives, which must approve all spending bills, according to the US Constitution.  But don’t hold your breath. Trump may now have a back door to this Constitutional obstacle and eventually get his way on the budget, at least in part, to fund his military spending plans.

Trump’s National Emergency ‘Workaround’ & the Budget

It should not be forgotten, Trump just enacted his ‘national emergency ’ to build his Mexico border wall by diverting funds, without Congressional approval, from other sources in the US budget—i.e. a clear violation of the US Constitution.  That ‘national emergency declaration’ will almost surely be approved by his current stacked US Supreme Court before the end of Trump’s first term.  When approved, the precedent will allow Trump to repeat the action, perhaps on an even larger scale. So what’s to stop him from using the same national emergency precedent to shift other funds in the future from social programs to the military and defense, as he clearly proposes in this latest budget?

Some liberals and Democrats may declare he can never do that. But they said the same about his national emergency declaration to fund his wall, and he declared it anyway. He will continue to subvert and destroy long-standing rules and even Constitutional norms within the government.  The national emergency declaration about funding his wall gave him his foot in the door. Will the Supreme Court eventually allow him to kick it open now in the future?  One shouldn’t be too surprised with this President, who has little concern or respect for Democratic rights and institutions.

We now have a precedent in the national emergency declaration. So what’s to stop him from shifting even more funds from social programs to war, defense and the military? In other words, to spend a good part of his proposed additional $2.7 trillion for the Pentagon, and to simply divert the funds from Medicare, Social Security, Education, etc.? The Democrat Party majority’s control of the US House of Representatives’ may refuse to pass legislation to approve Trump’s $2.7 trillion budget shift to the military and defense. But the precedent now exists allowing him to do it. Trump is intent on getting what he wants, to pander to his right wing base, and get himself re-elected. He cares little for Democratic norms or civil liberties. Don’t underestimate his willingness to shred those liberties and subvert those norms.

As worrisome as the politics of the US budget process going forward may yet prove to be, however, the economics of Trump’s 2019-20 budget are more serious. It represents a trend that will continue whether or not the budget is passed, either in the short or the longer term by national emergency declaration.

The $34 Trillion National Debt  

Whether Trump’s budget is passed or not, his fiscal policy (taxation and spending) already represents a faster escalation of US deficits and therefore Debt. During Trump’s first two years in office, US federal government deficits have driven the national debt up already by $3 trillion:  At the end of 2016, when Trump entered office, the US national debt was $19.5 trillion. Today it is $22.5 trillion. He’s thus already added $3 trillion, a faster rate per year of debt accumulation than under even his predecessors, George Bush and Barack Obama.

The Treasury Advisory Committee, a long standing committee of private experts who regularly provide advice to the US Treasury, recently warned the US Treasury that it will have to sell $12 trillion more US Treasury bonds, bills and notes, over the next decade if the US is to fund the $1 trillion plus deficits every year that now coming over the next decade, 2018-2028. That’s $12 trillion on top of the current $22.5 trillion national debt!  That’s a $34 trillion national debt by 2028!  According to the Congressional Budget Office research, that $34 trillion national debt will translate into no less than $900 billion a year just in interest payments on the debt by 2028—a roughly tripling of interest payments that will have to come out of future US budgets as well, in addition to escalating tax cuts and war-defense spending.

How will the US government pay for such escalating interest—as it continues to cut taxes for business, investors and the wealthy while continuing to accelerate war and defense spending?

20 Years of Accelerating National Deficits & Debt 

The US government’s growing Deficit-Debt problem did not begin with Trump, however. He just represents the further acceleration of the Deficit-Debt crisis. Trump’s escalating deficits and debt are driven by two main causes: tax cutting and defense-war spending increases.  But this is just a continuation of the same under Bush-Obama.

Studies show tax revenue shortfall accounts for at least 60% of US deficits. Another 20% is due to escalating defense spending, especially the ‘off budget’, so called ‘Overseas Contingency Operations’ (OCO) budget expenditures that go for direct war spending. The OCO is in addition to the Pentagon’s official budget, now to rise to $750 billion under Trump’s latest budget proposal.

The US actual defense budget, therefore, includes the $750 billion Pentagon bill, plus the OCO direct war spending.  Total defense-war spending also includes additional ‘defense’ spending for Homeland Security and for the CIA’s, NSA’s, and US State Department’s growing covert military spending for their ‘private’ armies and use of special forces. It further includes spending for Veterans benefits and military pensions, and for the costs of fuel used by the military which is indicated in the US Energy Dept. budget not the Pentagon’s. Add still more ‘defense’ spending on nuclear arms billed to the Atomic Energy Agency’s budget.  And let’s not forget the $50-$75 billion a year in the US ‘black budget’ that fund’s future secret military arms and technology, which never appears in print anywhere in the official US budget document and which only a handful of Congressional leaders in both the Republican and Democrat parties are privy to know.

In short, the US ‘defense’ budget is well over $1 trillion a year and is rising by hundreds of billions a year more under Trump.  US wars in the Middle East alone since 2001 have cost the US at minimum $6 trillion, according to various estimates. But contributing even more than wars to the now runaway national deficits and debt is the chronic and accelerating tax cutting that has been going on since 2001 under both Republican and Democrat presidents and Congresses alike—roughly 80% of which has gone to business, investors, and the wealthiest 1% households.

The Bush-Obama $14 Trillion Deficit-Debt Escalation 

When George Bush took office in 2001 the national debt was $5.6 trillion. When he left it was approximately $10 trillion. A doubling. When Obama left office in 2016 it had risen to $19.6 trillion. Another doubling. (Under Trump’s first two years it has risen another $3 trillion). For a US national debt of $22.5 trillion today.

Under George W. Bush’s 8 years in office, the tax cutting amounted to more than $4 trillion. Defense and war spending accelerated by several trillions as well.  The middle east wars represent the first time in US history that the US cut taxes while raising war spending. In all previous wars, taxation was raised to help pay for war spending. Not anymore.

Obama cut another $300 billion in taxes in 2009 as part of his initial 2009 economic recovery program. He then extended the Bush tax cuts, scheduled to expire in 2010, for two more years in 2011-12—at a cost of another $900 billion.  He further proposed, and Congress passed, an additional $806 billion in tax cuts for business as the US economic recovery faltered in 2010. Obama then struck a deal with Republicans in January 2013 to extend the Bush tax cuts of 2001-08 for another entire decade—costing a further $2 trillion during Obama’s second term in office (and $5 trillion over the next ten years, 2013-2023).  Thus $2 trillion of that further $5 trillion was paid out on Obama’s watch from 2013-16 as part of the 2013 ‘Fiscal Cliff’ deal he agreed to with the Republicans.

So both Bush and Obama cut taxes by approximately $4 trillion each, for $8 trillion total. And defense-war spending long term costs rose by $6 trillion under both.

Trump’s Deficit-Debt Contribution 2017-18

When added up, Bush-Obama 2001-2016 combined $6 trillion in war-defense spending hikes, plus their accumulated $8 trillion in tax cutting, roughly accounts for the US federal deficit-debt increase of $14 trillion, i.e. from $5.6 trillion in national debt in 2000 to $19.5 trillion by the end of 2016.

To this Trump has since added another $3 trillion during his first two years in office, which adds up to the current $22.5 trillion US national debt. Here’s how Trump has added the $3 trillion more in just two years:

In January 2018 the Trump tax cut provided a $4.5 trillion windfall tax reduction over the next decade, 2018-2028, targeting businesses, multinational corporations, wealthy households, and investors. US multinational corporations alone were allocated nearly half of that $4.5 trillion.

So where did the 2018 Trump (and continuing Bush-Obama tax cuts) go? Several bank research departments in 2018 estimate that in 2018 alone, the first year of Trump’s tax cuts, that the S&P 500 largest corporate profits were boosted by no less than 22% due to the tax cuts.  Total S&P 500 profits rose 27% in 2018. So Trump’s tax cuts provided the biggest boost to their bottom line.

Not surprising, with $1.3 trillion in corporate stock buybacks and dividend payouts occurring in 2018 as well, US stock markets continued to rise and shrug off corrections in February and November that otherwise would have brought the stock market boom to an end. But starting this year, 2019, the middle class will begin paying for those corporate-wealthy reductions. Already tax refunds for the average household are down 17%, according to reports. The middle class will pay $1.5 trillion in higher taxes by 2028, as the tax hike bite starts in earnest by 2022.

Another $1.5 trillion in absurd assumptions by the Trump administration about US economic growth over the next decade supposedly reduces the Trump’s $4.5 trillion of tax cuts for the rich and their corporations by another $1.5 trillion. Thus we get the official reported cost of only $1.5 trillion for the 2018 Trump tax cuts. But the official, reported ‘only’ $1.5 trillion cost of Trump’s 2018 tax cuts is the ‘spin and cover-up’. Corporate America, investors and the wealthy 1% actually get $4.5 trillion, while the rest of us pay $1.5 trillion starting, now in 2019, and Trump spins the absurd economic growth estimations over the next decade.

The 2018 Trump tax cuts have reduced US government revenues by about $500 billion in 2018. Add another $.5 trillion per year in Bush-Obama era tax cuts carrying over for 2017-18, another $.4 trillion in Trump war and other spending hikes during his first two years and more than $.6 trillion in interest payments on the debt—and the total is a further $3 trillion added to the national debt during Trump’s first two years.

So Bush-Obama add $14 trillion to the $5.6 trillion debt in 2000. And Trump adds another $3 trillion so far. There’s the $17 trillion addition to the $5.6 trillion national debt.[1]

And now, according to the Treasury Advisory Committee, we can expect a further $12 trillion in debt to be added to the national debt over the coming decade—to give us the $34 trillion and $900 billion a year just in interest charges on that debt!

Total US Debt: 2019 

But it gets worse than another $12 trillion. Today’s $22.5 trillion, rising to $34 trillion, is just the US national government debt. Total US debt includes state and local government debt, household debt, corporate bond and business commercial & industrial loan debt, central bank balance sheet debt, and government agencies (GSEs) debt.

The Devil is sometimes said to be "The Father of Lies." It is an apt definition for a creature that doesn't even exist except as a figment of human imagination. Satan is an evil egregore that we ourselves created, a creature that seems to loom larger and larger behind the current chronicles. The recent arrest of Julian Assange is just the latest deed of an Empire that seems bent on truly creating its own reality, something that, in itself, wouldn't necessarily be evil but that becomes so when it implies destroying all other realities, including the only true one. 

Initially, I thought to comment the recent news about Assange by reproducing a post "The Empire of Lies" that I published here about one year ago, where I described how the transition from the Roman Empire to the Middle Ages had taken place, in large part, because people just couldn't trust their Imperial rulers anymore. The Roman Empire had become an empire of lies and it was left to Christianity to rebuild the trust that the old empire had squandered - the Middle Ages were far from being "Dark Ages."  But, eventually, I thought to publish something I had in mind about how the Roman Empire and the modern Western Empire are following parallel trajectories in their habit of telling lies as they move toward their respective Seneca Cliffs.

So, here it is my assessment of the Roman Collapse, based on the excellent book by Dmitry Orlov, "The Five Stages of Collapse." Just one note: in the book, Orlov doesn't describe the post-collapse phase of the Soviet Union that ended with Russia becoming again as a prosperous and united country, as it is nowadays. It was a good example of the "Seneca Rebound" -- there is life after collapse and there will be new life after that the Evil Empire of lies will be gone.

The Five Stages of Collapse of The Roman Empire.
Ugo Bardi

Dmitry Orlov wrote "[i]The Five Stages of Collapse[/i]" as an article in 2008 and as a book in 2013. It was an original idea for that time that of comparing the fall of the Soviet Union with that of the United States. Being an American citizen born in Russia, Orlov could compare the two Empires in detail and note the many similarities that led both to follow the same trajectory, even though the cycle of the American Empire is not over, yet.

To strengthen Orlov's analysis I thought I could apply the same five stages to an older Empire, the Roman one. And, yes, the five stages apply well also to that ancient case. So, here is my take on this subject.

To start, a list of the five Stages of Collapse according to Orlov.
  • Stage 1: Financial collapse.

  • Stage 2: Commercial collapse.

  • Stage 3: Political collapse.

  • Stage 4: Social collapse.

  • Stage 5: Cultural collapse.
Now, let's see how these five stages played out during the fall of the Roman Empire.

Stage 1 – Financial Collapse (3rd century AD). The Roman Empire’s financial system was not as sophisticated as ours, but, just like our civilization, the Empire was based on money. Money was the tool that kept together the state: it was used to pay the legions and the bureaucrats and to make the commercial system supply the cities with food. The Roman money was a physical commodity: it was based on silver and gold, and these metals needed to be mined. It was the Roman control over the rich gold mines of Northern Spain that had created the Empire, but these mines couldn’t last forever. Starting with the 1st century, the cost of mining from depleted veins became an increasingly heavy burden. By the 3rd century, the burden was too heavy for the Empire to carry. It was the financial collapse from which the Empire never could fully recover.

Stage 2 – Commercial Collapse (5th century AD). The Roman Empire had never really been a commercial empire nor a manufacturing society. It was specialized in military conquest and it preferred to import luxury items from abroad, some, such as silk, all the way from the other side of Eurasia, from China. In addition to legions, the Empire produced only two commodities in large amounts: grain and gold. Of these, only gold could be exported to long distances and it soon disappeared to China to pay for the expensive imports the Romans were used to buy. The other product, grain, couldn’t be exported and continued to be traded within the Empire’s border for some time – the supply of grain from the African and Near Eastern granaries was what kept the Roman cities alive, Rome in particular. After the financial collapse, the supply lines remained open because the grain producers had no other market than the Roman cities. But, by mid-5th-century, things got so bad that Rome was sacked first by the Visigoths in 410, and then by the Vandals in 450, It recovered from the 1st sack, but the second was terminal. The Romans had no more money left to pay for the grain they needed, the commercial sea lanes broke down completely, and the Romans starved. It was the end of the Roman commercial system.

Stage 3 – Political Collapse (late 5th century AD). The political collapse went in parallel with the commercial collapse. Already in the late 4th century, the Emperors had become unable to defend Rome from the Barbarian armies marching across the empire and they had retired to the safety of the fortified city of Ravenna. When Rome was sacked, the Emperors didn’t even try to do something to help. The last emperors disappeared by the late 5th century but, already decades before, most people in Europe had stopped caring about whether or not there was some pompous person in Ravenna who wore purple clothes and claimed to be a divine Emperor.

Stage 4 – Social Collapse (5th century AD). The social collapse of the Western Empire went in parallel with the disgregation of the political and commercial structures. Already during the early 5th century, we have evidence that the Roman Elites had gone in “escape mode" – it was not just the emperor who had fled Rome to take refuge in Ravenna, patricians and warlords were on the move with troops, money, and followers to establish feudal domains for themselves where they could. And they were leaving the commoners to fend off by themselves. By the 6th century, the Roman State was gone and most of Europe was in the hands of Germanic warlords.

Stage 5 - Cultural collapse (starting in the 6th century AD). It was very slow. The advent of Christianity, during the 3rd century, had not weakened the Empire's cultural structure, it had been an evolution rather than a break with the past. The collapse of the Empire as a political and military entity didn't change things so much and for centuries people in Europe still considered themselves as Romans, not unlike the Japanese soldiers stranded in remote islands after the end of the second world war .(in Greece, people would still define themselves as "Romans" well into the 19th century). Latin, the imperial language, disappeared as a vernacular language but it was kept alive by the Catholic clergy and it became an indispensable tool that kept Europe culturally united. Latin kept a certain cultural continuity with the ancient empire that was only very gradually lost. It was only with the 18th - 19th centuries that Latin disappeared as the language of the cultural elite, to be replaced by English nowadays.

As you see, Orlov’s list has a certain logic although it needs to be adapted a little to the collapse of the Western Roman Empire. The 5 stages didn’t come one after the other, There was more than a century lapse between the 3rd-century financial collapse (stage 1) and the three subsequent stages arriving together: commercial, political, and social collapse. The 5th stage, the cultural collapse, was a drawn-out story that came later and that lasted for centuries.

How about our civilization? The 1st stage, financial collapse is clearly ongoing, although it is masked by various accounting tricks. The 2nd stage, commercial collapse, instead, hasn't started yet, nor the political collapse: the Empire still maintains a giant and threatening military force, even though its actual efficiency may be doubted. Maybe we are already seeing signs of the 3rd stage, social collapse but, if the Roman case is a guide, these three stages will arrive together.

Then, how about the last stage, cultural collapse? That's a question for a relatively far future. For a while, English will surely remain the universal language, just as Latin used to be after the fall of Rome, while people may keep thinking they still live in a globalized world (maybe it is already an illusion). With English fading, anything may happen and when (and if) a new Empire will rise on the ashes of the American Empire it will be something completely different. We can only say that the universe goes in cycles and that's, evidently, the way things have to be.

Seeing the systemic roots of this risk can help us avert catastrophe and build resilience

Nafeez Ahmed



Gold Will Save Investors From Sinking Global Currencies

The relative stability of reserve currencies, along with their viability as a store of wealth, will soon be placed into question as governments around the world crumble under the weight of national debt. That is according to Sprott CEO Peter Grosskopf, who recently published a note warning investors of the impending crisis.

Although it rarely makes headlines, an article on Kitco reports the $184 trillion of global debt is perhaps the biggest threat to the world economy since the invention of fiat, and an ever-expanding one at that. While representing only a small portion of that figure, the article states the $22 trillion of U.S. debt should be of particular concern to domestic investors, along with the fast-approaching $1 trillion of federal deficit. Pundit projections state that a national debt of $24 trillion will mark the beginning of an economic catastrophe.

Although economists universally agree that there is no easy solution to the debt issue, Grosskopf warns that such a solution is precisely what central banks will opt for. He suggests this will likely come in the form of Modern Monetary Theory (MMT), a form of ultra-loose fiscal policy that will essentially give countries free reign to print as much money as needed to stimulate growth. Grosskopf, like others, believes that this will erode currencies even faster, as hyperinflation is one of MMT’s many issues. Not coincidentally, gold has historically acted as the premier hedge against currency debasement and all other forms of economic fallout. Grosskopf thinks that fiat could ultimately make way for gold’s return as a payment method. While it may not happen tomorrow, Grosskopf thinks investors don’t have time to waste when it comes to moving into gold, as MMT’s growing popularity means that we could soon see quantitative easing on an unprecedented scale.

Gold is the Winner of Trade Wars
A mere few weeks ago, the U.S.-China trade conflict gave off an optimistic look as both nations’ leaders met in order to reach a mutually-beneficial agreement. Since then, however, trade talks have deteriorated and most now agree that the two countries are in a full-fledged trade war.

Gold has not yet benefited from the looming crisis, as most investors are waiting to see which nation makes the next move and escalates the conflict further. Yet Gary Wagner, editor of, has little doubt that gold will be the true winner of the standoff. In an interview with Kitco, Wagner explained how the trade war will affect all markets and spread into each sector. Although the 25% increase in import tariffs is meant to detriment China, it’s the average American consumer that will ultimately pay the price for the conflict. As Wagner notes, the added tariffs will have a significant inflationary effect as domestic manufacturers ramp up prices, strengthening gold’s long-term bullish case. The erosion of other assets as a consequence of the trade war will act as another tailwind for the metal. “There will be an increase in inflation, and we could see continued pressure on U.S. equities, and we could see gold be a recipient in terms of a bullish move,” said Wagner.
Regarding short-term movements, the analyst pointed to $1,310 as a key resistance level to look out for, followed by the most recent high of $1,350 an ounce. To Wagner, either of these levels could be a signal that gold’s prolonged uptrend has begun.


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