|Under IMF-Type Austerity
by Stephen Lendman
Countercurrents.org (March 19 2010)
It's what economist David Rosenberg calls recovery given plenty of
supportive evidence, including:
-- over five million homeowners behind on their mortgage payments;
-- at record levels, foreclosures are alarmingly high; moreover, "the
foreclosure pipeline is enormous";
-- "housing, the quintessential leading indicator", turning lower again in
starts, sales and prices;
-- instead of a normal five to six months home supply, the market has a 21
month overhang, including shadow inventory from the foreclosure pipeline;
-- mortgage applications for new home purchases down 13.9% on top of last
-- over six million Americans unemployed for at least six months, "a
record forty percent of the ranks of the joblessness";
-- over eleven million full-time jobs lost since late 2007, and well over
four and a half million since Obama took office, despite pledging to
-- millions of jobs lost despite massive economic stimulus, and when it
slows, watch out;
-- a federal deficit over ten percent of GDP, twice the 1930s ratio;
-- private capital growing at its slowest rate in nearly two decades;
-- thirty percent of manufacturing capacity idle;
-- nineteen million vacant residential housing units - about fifteen
percent of the total;
-- one in six Americans unemployed or underemployed;
-- the adult male employment-to-population ratio at a record low 67%
compared to 73% when the recession began;
-- at this stage of the economic cycle (two and a half years after Fed
easing began), employment typically expands at least 150,000 per month;
instead, it's still contracting, the level is 8.4 million lower than
before the recession began, and the economy is twelve million jobs shy of
full employment, a gap that will take years of sustainable growth to close;
-- commercial real estate values down thirty percent in the past year and
-- the average American worker $100,000 poorer (including loss of home
equity), even with the stock market rally;
-- bank credit contracting at an unprecedented fifteen percent annual rate
this year "as lenders sit on a record $1.3 trillion in cash";
-- collapsed commercial and industrial loans;
-- Falling Gross Domestic Income, approaching an annualized minus four
percent compared to the 1982 recessionary low of plus four percent and
2001 low of plus two percent; "the discrepancy between the income and
spending accounts has never been so wide as" today; and
-- unit labor costs down 4.7% in the past year, meaning workers earn and
Conclusion - "the era of 'green shoots' is officially dead". Now you see
them, now you don't because they never were there in the first place.
A recent issue of the Economist magazine asked "Why Is the recovery
jobless? Maybe because it isn't a recovery", with no lack of supportive
evidence. "In February, for the twenty-fifth time in 26 months, the
American economy shed jobs", and beneath the surface it's much worse.
The official 9.7% headline number (so-called U-3; U-6, including
discouraged workers, is 16.8%) obscures the true figure, what economist
John Williams calculates at 21.6%, minus the manipulated deception. The
Economist concludes that "the American economy simply hasn't been doing as
well as the output figures have suggested".
Take GDP, for example. Rosenberg explains that the fourth quarter's 5.9%
growth "came in two non-recurring items - inventories and capital spending
(the former a temporary alignment of stocks with sales and the latter a
late-year rush to take advantage of some tax goodies)".
Those aside, the economy slowed to less than one percent, may be revised
lower, and the two headline figures won't likely repeat, given a wealth of
depressing data, including retail sales. The headline February 0.3% (0.8%
minus autos) rise beat an expected 0.2% decline.
However, the raw data paints a different picture - minus 1.6%
month-over-month in February (a month when rises usually occur) or four
times as bad as the norm, and worst February in twelve years.
This (says Rosenberg) in spite of "the greatest stimulus experience in
seven decades, and retail sales are still down five percent from the
pre-recession peak and on a per capita basis eight percent". They're lower
than in January 2006 despite a 4.3% larger population, and adjusted for
inflation, they're down to 1996 levels on a per capita basis.
Some recovery, and little wonder the latest Conference Board consumer
confidence survey showed only 6.2% of the public thinks business
conditions are good - a record low.
As a result, several presidential tracking polls have Obama at from 44% to
49%, down from 68% in January 2009, and for Congress it's worse at around
about thirty percent. If conditions worsen, expect further erosion, and if
an economic storm erupts, they may crash.
Money Creation Madness
Through September 2008, it took the Fed nearly fourteen years to double
bank reserves. Bernanke did it again in less than four months, swapping
good assets for bad ones, bank held toxic junk, but only a small fraction
of their total holdings, so the big ones remain insolvent.
Bailouts and massive borrowing are crowding out the private sector, making
it hard to impossible for most businesses and consumers to borrow. In his
March 15 commentary titled, "The Great Credit Squeeze", financial expert
and investor safety advocate Martin Weiss explains the dangers:
-- total government borrowing (federal, state and local) at an annual pace
of over $1 trillion; while
-- businesses reduced existing debts at a near $1.1 trillion annual rate;
-- consumers virtually shut out entirely from credit markets "cut(ting)
their existing mortgages at the annual rate of $365.1 billion and their
consumer credit at the rate of $145.3 billion", totaling an annualized
$510.4 billion cutback.
Confirming the ongoing record bank credit contraction, "credit (overall)
is actually being sucked out of the consumer and corporate economy at a
torrid pace". The real economy is starved because of massive government
borrowing fueling a potential sovereign debt crisis like in Iceland,
Greece, and Eastern Europe, and threatening Portugal, Ireland, Italy,
Spain, the UK, and America.
Author Niall Ferguson sees three possible Greek outcomes, potentially
affecting all heavily indebted countries:
-- "one of the most excruciating fiscal squeezes in modern European
-- "outright default; (or)
-- "some kind of bailout", but he omitted the one chosen as a long-term
fix - the imposition of IMF austerity, including deficit reduction through:
-- large government layoffs;
-- a public sector ten percent wage cut, including a thirty percent
reduction in salary entitlements;
-- a twenty percent cut in civil service bonuses;
-- freezing pensions;
-- a two-year increase in the average retirement age;
-- increasing the current nineteen percent value added tax to 21%;
-- higher fuel, alcohol, tobacco, and luxury goods taxes; and it's only
the beginning with more painful measures to come.
IMF chief economist Olivier Blanchard warns that high-debt countries like
Greece face budget squeezes for a decade or two, requiring "painful
sacrifices". Of concern is that spreading Greek troubles threaten a very
dicey situation in Europe, America, and elsewhere - the reason David
Rosenberg calls today's crisis:
"a depression because (since World War Two) recessions were merely small
backward steps in an inventory cycle but in the context of expanding
credit. Whereas now, we are in a prolonged period of credit contraction,
especially as it relates to households and small businesses."
It's why financial expert Bob Chapman says America's financial system "is
on the edge of default", and public anger is growing, a recent poll
showing "92% of those surveyed wanted to unseat their current
representative or Senator ... and only 21% believe that government enjoyed
the consent of the governed".
Given bipartisan criminality, a president beholden to power, a Congress
long ago bought and paid for, and the notion of a government of, by and
for the people ludicrous, but not funny given growing unaddressed human
desperation - about to worsen when the full Obama package becomes law,
including worsening a dysfunctional healthcare system, destroying public
education, putting the Fed (Wall Street) in charge of financial reform and
consumer protection, and imposing IMF-style austerity.
IMF Austerity Arriving in America
It's not coming. It's here, being incrementally rolled out, including
painful structural adjustments - some legislated, others unavoidable like
the possibility suggested in Jonathan Laing's March 15 Bloomberg.com
article, titled "The $2 Trillion Hole" in public-employee retirement plans.
About eighty percent of them are defined benefit plans, meaning monthly
payments are guaranteed, but can insolvent states and municipalities
comply, especially given years of under-funding, fewer contributing
workers at lower pay, and continuing large budget cuts, including mass
layoffs and reduced benefits making a bad situation worse.
Enough for University of Chicago finance professor Robert Novy-Marx and
Northwestern University's Joshua Rauh to estimate a $3 trillion plus
pension funding gap for states alone, and if economic conditions worsen,
who knows how much higher, or if millions of retirees will, in fact, get
promised benefits, despite guarantees and taxpayers hit for the shortfall.
Corporations renege on Defined Benefit Pension Plans (DBPP) by cutting
benefits, switching to Defined Contribution Pension Plans (DCPP), or going
bankrupt and eliminating them entirely with the help of obliging courts.
So why not states and municipalities, especially given to how close to the
edge they are, forcing once unthinkable actions with sweeping consequences.
What's happening regionally and locally arrived in America from reckless
policies creating unsustainable rising debt levels - "debt peonage" for
economist Michael Hudson that "can't be repaid". It's the core problem,
and no evidence shows "countries simply grow out of their debts",
according to University of Maryland Professor Carmen Reinhart and
Harvard's Kenneth Rogoff, or borrow their way out for Michael Hudson. When
the going gets tough, some default, others inflate, but most rely on
spending cuts and higher taxes, making people pay for political
indiscretions - make that crimes.
Washington may impose higher taxes and devalue the dollar, but mostly
expect benefit cuts, the idea being to end core ones including Medicare,
Social Security, eventually Medicaid, plus others millions rely on but
won't get if tough measures are enacted. Expect them. Some are here.
Others are coming through the same structural adjustments imposed on
developing countries and just as painful and destructive.
One calls structural adjustment programs (SAPs) "a series of economic
policies designed to reduce the role of government", replacing its
obligations with market incentives - in other words, privatize.
BusinessDictionary.com calls it "change effected in the basic framework of
an economy by the impact of policy reforms, such as 'liberalization' of
the economy by reducing protectionism and state intervention" - in other
words, what government does, business does better so let it.
It's pure Chicago School fundamentalism, Milton Friedman (1912 - 2006) its
leading advocate for public wealth in private hands, unrestrained
accumulation of profits, abolition of corporate taxes, and social services
curtailed or ended. He called economic freedom an end to itself; opposed
minimum wages, unions and an egalitarian society; supported a flat tax for
the rich; wanted Social Security and Medicare abolished; believed private
schools should replace public ones; wanted everyone to be on their own
"free to choose"; and called profit-making the essence of democracy - a
dark world view harmful to the majority and devastating to the poor and
disadvantaged, characterized by SAP harshness.
They benefit capital, not people, and the more severe, the greater the
harm. They're a package of wage and benefit cuts, mass layoffs,
privatization of government services, deregulation, de-unionization,
currency devaluation, free capital flows, market-based pricing, free (not
fair) trade, environmental harm, and at least one other few know about.
A provision in the 2008 Farm Bill lets Washington withhold up to fifteen
percent of Social Security and disability benefits from anyone with
outstanding government debts, no matter how old. It applies to farm and
small business loans, unpaid or disputed taxes, health care amounts
veterans owe, and other government debt, potentially affecting millions
late in life when they can least afford it.
Overall, the effects are devastating, including growing poverty,
inequality, the destruction of the middle class and unions, hunger,
homelessless, environmental harm, and police-state measures to quell
dissent - the essence of tyranny showing up in America and arriving at a
Barack Obama - Neoliberal Neocon
As a candidate, he promised change, a new course, sweeping government
reforms, addressing people needs, and "ensur(ing) that the hopes and
concerns of average Americans speak louder in Washington than the hallway
whispers of high-priced lobbyists ..."
As president, he's for business as usual, not the public. Besides
unbridled militarism, imperial wars, handouts to the rich, shocking
lawlessness, embracing torture, political persecutions, illegal spying,
and police state rule, he ignores growing poverty, joblessness,
homelessness, human despair, and budget-strapped states in favor of a
discretionary spending freeze from 2011 through 2013, amounting to
one-sixth of the budget. Defense, national security, and business needs
That was his State of the Union message, followed up by Executive Order
(EO) 13531 on February 18 titled, "National Commission on Fiscal
Responsibility and Reform". In other words, soak the poor. Enrich the
wealthy, the way it always works, mostly in recent decades, especially
since 2000, and more than ever under Obama - central casting's poster
child for power.
His EO charges the Commission with "improv(ing) fiscal sustainability over
the long run (and) balanc(ing) the budget" by 2015 - impossible given
trillion dollar plus annual deficits as far as the eye can see. Its real
aim is to dehumanize America, strip off its democratic veneer, and
transform it full-blown into Guatemala, Honduras, or occupied Iraq,
Afghanistan, or Palestine through imposed austerity enforced by
As for "fiscal responsibility", financial writer Ellen Brown calls it
fear-mongering code language for:
"delivering public monies into private hands and raising taxes on the
already-squeezed middle class", not a measure "to save the country from
She quoted Professor Carroll Quigley from his Tragedy and Hope: A History
of the World in Our Time (1966), saying:
Financial capitalism's "far-reaching aim (is) to create a world system of
financial control in private hands able to dominate the political system
of each country and (world) economy ... This system (aims for control) in
a feudalist fashion by (world) central banks ... acting in concert, by
secret agreements arrived at in frequent private meetings and conferences".
He was prescient, former high-level government and business insider,
Catherine Austin Fitts revealing "a financial coup d'etat", including
engineering a "fraudulent housing and debt bubble, illegally shift(ing)
vast amounts of capital" offshore, and "us(ing) privatization as a form of
piracy - a pretext to move government assets to private investors at
below-market prices and then shift private liabilities back to government
at no cost to the private liability holder".
It's a government-business cabal to suck wealth from the many to the few,
and from the wreckage propose reform, meaning sweeping austerity and
greater than ever top down control, in America and globally - a cynical
scheme using populist rhetoric and "slow burn" tactics for what Michael
Parenti described in his 2002 "Global Rollback" article, saying:
"Throughout history (ruling classes most of all have wanted) all the
choice lands, forests, game, herds, harvests, mineral deposits and
precious metals of the earth; all the wealth, riches, and profitable
returns; all the productive facilities; all the gainful inventiveness, and
technologies; all the surplus value produced by human labor; all the
control positions of the state and other major institutions; all public
supports and subsidies, privileges and immunities; all the protections of
the law with none of the constraints; all the services, comforts,
luxuries, and advantages of civil society with none of the taxes and
costs. Every ruling class has wanted only this: all the rewards and none
of the burdens."
As their faithful servants, Barack Obama, Congress, and the courts are
delivering the whole package, or, in other words, poverty for the many and
unlimited wealth and privilege for the power elite. When will enough
concerned people act in their own self interest to stop them?
Stephen Lendman is a Research Associate of the Centre for Research on
Globalization. He lives in Chicago and can be reached at
Also visit his blog site at sjlendman.blogspot.com