ECONOMIC US STAGNATION
      in A GATHERING GLOBAL RECESSION

                                                           by William Schmidt, Ph.D. 

                         

                The world economy is slowing down.  See the Tiger charts of Foreign ETFS
                and China below.   Relying on global markets will not help individual countries
                or America to escape the downturn.  






                                                        OBAMA TO THE RESCUE? 
                                           Wall Street - Yes.  Main Street - HARDLY

                Obama says he will be offering a new Job plan in September after Labor Day.
                Better late than never, I guess.  But Obama has been in office almost 3 years and
                the economic stagnation and sense of hopelessness among the jobless
                is not getting better.  He had his chance in 2011 to repeal the Bush tax cuts and
                fund a new Public Works program.  He utterly chickened out, showing his campaign
                pledges to help ordinary Americans were deliberate, fraudulent lies.

                Obama's advisors are economic internationalists.  None appear to have argued
                for curbing Wall Street's appetite for foreign investments and the exporting
                of jobs.  His Chief of Staff is from JP Morgan.  His pick of Jeffrey Immelt,
                CEO of GE,  to head his "Jobs' Panel" is a deep insult to all American workers.  
                Not only did GE pay no taxes last year,  they are very busy exporting thousand of
                jobs to China, even as Immelt consults with Obama.  GE is also sitting on a hoarde
                $79 billion. 

                I  do expect him next month in his new proposals to offer new subsidies to
                corporations if they hire Americans rather than foreigners.  Why did he not do this
                when his party had a majority? And why not heavily tax corporations that
                ship jobs, tax overseas investments and strictly limit Gold and Commodities
                by raising margin requirement? 

                These things Obama dares not do.  It would threaten his Wall Street campaign
                contributors' profits.  All thoughout his Presidency, Obama has placed his political
                bets on Wall Street and trickle-down economics.  Until he has a challenger in 2012,
                why should he change, he thinks? 

                A bigger stock market crash is, nonetheless, coming I believe.  What Wall Street wants
                is clearly at odds with what America needs, namely a new, fair deal and a re-industrialization.  
                Despite Wall Street and Obama, the lessons of the 1930s show there will be bigger
                populist moves for:
                1) New Taxes on the Rich,
                2) New and Better Regulations of Wall Street,
                3) Massive Public Works,
                4) Tariffs
                5) Controls on the Export of Capital
                6) Controls on the Speculation in Gold and Commodities.

                                                                A DIRE PREDICTION

                Years of stagnation, high unemployment,  mass poverty and ultimately civil unrest
                lie ahead, if American policy leaders do not wake up and change their mantra of
                Balanced Budgets, Free Trade and Laissez-Faire  "free market" economics. 

                Much more aggressive,  new fiscal and trade policies are desperately
                needed to make capitalism work again.  Is it too much to think that If changes
                in such policies are not made soon,  civil unrest and fascism may be real
                possibilities?  Surely that is one of the key lessons of the 1930s.

                1.  Economic stagnation. How long will the millions of long-term unemployed wait
               quietly for Obama, Congress and Wall Steeet directed Capitalism to provide enough jobs? 

               "The portion of men holding a job—any job, full- or part-time—fell to 63.5 percent in July
                 —hovering stubbornly near the low point of 63.3 percent it reached in December 2009.
                These are the lowest numbers in statistics going back to 1948. Among the critical
                category of prime working-age men between 25 and 54, only 81.2 percent held jobs,
                a barely noticeable improvement from its low point last year—and still well below
                the depths of the 1982-83 recession". (Source . )

                 2. Tax the Rich.  Obama's Trickle-Down economics has clearly not worked.
                 Trusting that lowering the taxes on the rich and extending more tax benefits
                 to them and their biggest multinational corporations has been a terrible mistake.
                 The   pro-"Supply-Side" utterances on this topic by the Heritage Foundation and
                 other right-wing  think-tanks bought and paid for by the very wealthy cannot be trusted. 

                 Facts differ too much: growth was greatest in the 1950s and 1960s when marginal
                 tax rates were highest, above 90%.   The Bush tax cuts have coincided with stagnation
                 on Main Street.  Increased  "investor confidence" has not created more manufacturing
                 jobs here.  It has helped overseas.  "Trickle-down" works poorly when the rich buy
                 mostly imports, invest mostly overseas and travel more abroad. 

                 And when the rich do get scared, as they are now, they hoard their money and speculate
                 in Gold and precious metals, rather than create jobs here with new investments.   The
                 biggest corporations, we are told, are sitting on a record sum of cash.    "Non-financial
                 corporations sit atop a record $1.9 trillion in liquid assets, according to the Federal
                 Reserve. Relative to their short-term liabilities, U.S. corporations haven't been this
                  flush with cash since 1956." ( Source. )  Big multinational corporations are clearly not
                 investing in new plants or hiring here.  Wages are much cheaper elsewhere.
                 Consumption is too low here.   The simple fact is that American workers can not
                 consume if they are poorly paid or unemployed and multinationals are very disloyal
                 to Main Street America. They only maximize profits. 

                 Everyday Americans, if not its politicians and international bankers and CEOs,
                 understand that we desperately need much more taxation of the very wealthy,
                 their property and their income.   They already use more lawyers and accountants
                 to dodge more taxes than other Americans.  Worse, their fraud and rash and reckless
                 speculation crashed the economy in 2008.  Yet they were massively bailed out and
                 barely re-regulated,  Now it's time that the Government help all the rest of us
                 who were not bailed out and still suffer from the consequences of the unregulated
                 greed on Wall Street.  The Bush tax cuts on the wealthy  have cost America a whopping
                 $2.8 trillion dollars.  (Source . ) 

                                       
                                        http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the-root-of-our-fiscal-problem/

                 As a result of the Bush tax cuts on the rich,  each and every American's debt
                 via the US Government rose about $900.   With this money, we could have
                 guaranteed health care for each child in America.  Every poll shows Americans
                 favoring higher taxes on the rich by 2:1 and 3:1. 

                 The sad truth is that Obama utterly reneged on his campaign pledges when he took
                 the Bush tax cuts off the table in 2011.  How much hope can we have now that he
                 will reverse himself next month to help America's recovery?  And if he does, it
                 won't it be just hollow rhetoric, given the Republican control of the House.

                3.   Defense Spending Is Now Destroying America.  Almost everyone understands
                this, except perhaps  Obama and those who work for Boeing and Northrop, etc.
                America just cannot afford a $600+ Billion Military budget.  How long must we wait
                for the unpopular wars to be ended and the vast network of costly overseas
                military bases be abandoned.  World War II ended 66 years ago! We spend more
               on our military than all the rest of the world combined.

                4. What we do need are a Vast Public Works Programs to fix the country's aging
                indrastructure and potholes.  This will provide millions of new jobs at a time
                when corporations are not investing much in America.  A new Civilian Conservation
                Corps for youth would show Americans that we can learn from the accomplishments
                of FDR facing the Depression.

                 5. And, most important, we need TARIFFS on imports, new Heavy Taxes on Overseas
                 investments by Americans and a President who advocates "BUY AMERICAN". 
                 Government long range planning would prioritize the rebuilding of the country's basic
                  industries.   Encourage private investment in America and discourage it overseas.
                  Without tariffs and a revived domestic manufacturing industry, the public works
                  programs will not properly revive the economy.  Too much will still be imported.

                 6. State and Community Public College Education must be much less expensive.   It can
                 not as now, be so expensive that it keeps Americans from getting the skills needed
                 for 21st Century jobs in a re-indistrialized America. 
                 What will Obama propose to help the young get a college education?  Not much,
                 I fear.  He has already reneged on his campaign promises in this to the young when
                 he sacrificed already inadequate, means-based Pell Grants for college education
                 to budget cutting Republicans in Congress.

                 Sources:
                 http://articles.cnn.com/2008-12-03/living/college.costs_1_family-income-college-affordability-higher-education-report?_s=PM:LIVING 
                 On the vital role of community colleges, see
                 http://www.compact.org/wp-content/uploads/resources/downloads/CCivic_role-final.pdf

                7. Campaign Contributions by the rich must be limited.  And Campaign Contributions
                 by corporations must be completely banned.  Corporations are not people.  They
                 have no heart.  They have no conscience.  And they are not citizens of America.
                 They are multinationals.  Corporations are destroying American Democracy
                 and buying every politician in sight.  The sinister and perverted interpretation
                 of "free speech" used by the Supreme Court to grant them unlimited powers
                 must be reversed or Democracy will give way to corporate fascism and repression
                 of dissent, as in Italy, Spain and Germany.  An extreme view?  How else will
                 corporations be able to silence the anger of millions desperately without jobs?
                 That is the lesson of the 1930s. 


                                                                    A DIRE PREDICTION

                Years of stagnation, high unemployment,  mass poverty and ultimately civil unrest
                lie ahead, if American policy leaders do not wake up and change their mantra of
                Balanced Budgets, Free Trade and Laissez-Faire  "free market" economics. 

                                     AN OUTDATED ORTHODOXY IS DESTROYING AMERICA.

                It should be clear by now that the solution for the US about how it will escape the
                downhill, out-of-control, stagnation spiral will most certainly NOT come about by:

                        1) Trusting that lowering the taxes on the rich and extending more tax benefits
                        to them and their biggest multinational corporations will increase "investor
                        confidence" and create more  manufacturing jobs here.  

                        Warren Buffet sees the injustice here.  The US has by far the most economically
                        unequal society of any industrialized country. This causes great stress and poor
                        health for a hundred million Americans. 
                        See also my Blog - 8/2/2010 www.tigersoftware.com/AUG-3-2010/index.html

                       Uncorrected, it will eventually bring civil disorder and chaos. Greed is not good. 
                        See also my Blog - 10/19/2011 -

                


                                           Can Pumped Up Stocks Escape Trouble?

    The world economy still has huge problems.  Will stocks be able to stay up?  The Fed has
    done a marvelous job in keeping the stock market rally alive for 27 months by generously
     loaning vast sums to all the biggest banks at very little cost, by printing new money to buy
     bonds and by keeping interest rates low, despite quickly rising gold and commodity prices.
     Bernanke is fighting the forces of economic stagnation and high unemployment
     with only monetary policies.  They are not enough, he is the first to say.  More stagnation,
     higher unemployment and the loss of more manufacturing to Asia and Europe are in
     the cards.  A longer economic stagnation and higher unemployment will cause, I expect,
     a re-thinking of economic orthodoxies, especially free trade and balanced budgets.

                         The Lesson of the 1930s: Globalism Will Likely Break Down

     The 1930s high unemployment and stagnation caused many countries and economists
     to re-think orthodox economics (balanced budgets, trickle-down, gold standard, the
     superiority of private over public enterprises and free trade),   I think the same will happen
     again.  If I had to pick a date, I would say we are in the 1930, when Hoover tried to balance
     the budget.  There are big differences, of course.  We are at war.  If the wars were ended,
     there would be even higher unemployment.

     Right now budget balancing is all the rage in Washington, London, Berlin, Paris and
     now Spain.  Its dire effects in Europe and the US in the 1930s seem unknown or forgotten. 
     But if history repeats, when these countries' economies worsen and unemployment jumps
     to unacceptable levels, as happened in 1931 and 1932, when budget balancing had made
     things much worse,  there will be more and more cries for Deficit Spending, Protectionism,
     Public works, Curbs on Exports of Capital, Wage and Price controls and even the Confiscation
     of Gold.

                                          Sudden Shifts of Thinking and Herr Schact

     Germany's leading banker of the 1920s, Hjalmar Schact, a free trader and budget balancer,
     read Keynes and dramatically reversed himself completely in 1929.    (Keynes himself switched
     to protectionism in 1933, as did Neville Chamberlain, the Chancellor of the Exchequer.)

     Imagine in our time, if someone like Bernanke or Buffett suddenly switched to strongly
     favoring Public Works, Tariffs, Autarchy  (national economic self-sufficiency) and even the
     Repudiation of International Debts, as Schact did.  Wall Street would take a very big hit! 
     Yet these were many of the policies adopted in the aftermath of the world wide economic
     collapse of 1931 and 1932.   Wall Street has bet big on multinationals.  The biggest "American"
     stocks are all multinationals.  I think wrenching challenges lie ahead to stock prices,
     especially if the current rally fails and Obama and the Tea Party leaders offer no new ideas
     in early September about how to create millions of jobs by re-industrializing  America.  

    Many economists think that the 1929 stock market collapse was partly a response to the growing
    realization then that the Smoot Hawley legislation was going to pass, with its big jump in tariffs. 
    The dependence on international trade is much greater now.  Wall Street and the major
    corporations would never happily allow such an increase in tariffs.   Yet, without some restrictions
    on imports or subsidized industrial production here, a massive pubic works program, like TVA,
    the Hoover, Grand Coulee Dam or Civilian Conservation Corp., would be much less effective
    as an economic stimulus. 

    Take an example.  Consider high speed trains as a US public works program to modernize
    the infrastructure.   Presently, much of the steel would have to be imported. And the newly
    hired workers would probably buy lots of Chinese imports from Wal-Mart.    Keynes'
    "multiplier effect" with public works projects in the US in 2012 will be much lower now than
    it was in 1933-1937.
            

       Tennessee Valley Authority         Grand Coulee Dam                 Hoover Dam                               CCC


                                                       Muddling Through Will Not Work

      England in the 1930s tried to muddle through.  It did not work well.  Unemployment
      remained very high until the war and the Pound fell sharply, giving them inflation, too.
      This is like the late 1970s, except that Bernanke's approach is the opposite of Paul
      Volker's higher and higher interest rates.

      The easiest path politically now in the US is still relying on Bernanke to boost Wall Street
      through very loose monetary policy and hope that there with be more business loans
      and some trickle-down to American workers, even though the export of jobs goes
      on unabated and banks . 

                                Tariffs Are Needed, but Wall Street Will Never Allow Them

      Tariffs do have their downside.  Which industries should be protected?  Across-the-board? 
       Should  goods produced unsafely by underpaid serfs be allowed into the US?  When it comes
       to campaign contributions, the multinational importers generally speak far louder than the
       unemployed workers that have been displaced.   Whereas once up a time, the corporations
       that made steel, sneakers, autos or amplifiers here might have complained bitterly, now they
       own many of the factories abroad that are sending goods here.

      Tariff  legislation, though incresingly popular on Main Street now, as a way to save jobs here, 
       would almost certainly mean antagonizing China, which has built whole industries
       around exports to the US.  There would be retaliation by all the trading partners in
       the US.  Foreign US Debt holders would likely sell.  That would panic Wall Street.  The
       Dollar would crash.  The Fed would have to print lots more Dollars or a sharply raise
       interest rates.   

       If not tariffs, what about fairer trade agreements.    The links below argue that the
       Obama Adminstration has not bargained any more aggressively with US trading partners,
       particularly China,  than he did with the tea party Republicans.   There are numerous
       references to Obama's failure to fight against unfair foreign trade practices that hurt
       American manufacturing:
                 http://www.examiner.com/political-buzz-in-lafayette-la/obama-s-trip-to-china-could-further-destroy-america-or-is-that-the-plan
                       http://www.highbeam.com/doc/1G1-233548728.html                    
                 http://americanmanufacturing.org/blog?p=12026
                  http://citizen.typepad.com/eyesontrade/2011/08/pelosi-pushes-back-against-obama-backed-unfair-trade-agreements.html
                  http://www.punxsypage.com/news/start/68431_Casey_to_Obama__Protect_dairy_farmers_from_unfair_trade_practices.htm
                  http://www.mittromney.com/blogs/mitts-view/2011/07/president-obamas-retreat-china-costing-america-jobs http://www.prnewswire.com/news-releases/dnc-chair-debbie-wasserman-schultz-mitt-romney-will-not-stand-up-for-american-workers-in-the-global-economy-126280603.html
    
         Obama's soft touch when it comes to regulating Wall Street or fighting for fairer
         trade agreements is not accidental.   Wall Street was his biggest campaign contributor
         in 2008.  Nearly all of his economic advisors and his Treasury Secretary are from there.
         Almost every day,  we see evidence that Obama is their puppet of Wall Street. 
         See my Blog - http://www.tigersoftware.com/TigerBlogs/April-9-2010/Index.html
         and also  http://www.globalresearch.ca/index.php?aid=18960&context=va


         Today, he apponted Alan Kruger to head his advisors.  Kruger is a micro-economist.
         Tariffs, public works and taxation policies are outside his kin.  He specialized in the
         decision making of individual firms and employees, not broader economic issues.
         If Obama were serious about Public Works he would have picked Paul Krugman.
         His failure to appoint Elizabeth Warren to head the new Consumer Protection Dept.
         of the Fed also showed how conservative and unimaginative Obama is.
         economic issues.  I said earlier that Obama's next Jobs speech will favor
         Tax Credits, not taxes.  Obama's choice today of Kruger is consistent with that.

                                                                CONCLUSION

         So, the future does not look good.  Wall Street and Main Street are at odds.  
         The 1930s should warn us about how quickly the world can deteriorate.  Gold is a haven
         until there is another violent Crash, as in October 2008.  That Gold turned up sharply
         the last two trading days this week suggests a crash is not imminent, but it probably
         is coming,   The tension between Wall Street and Main Street and between Obama
         and his supporters is too great to last much longer.  Peerless is on a Buy now, but
        how long will it last?  Get Peerless or the Hotline and Find out. 



             More Reading:
                http://en.wikipedia.org/wiki/Alvin_Hansen  
                http://finance.yahoo.com/career-work/article/113390/disappearance-american-working-man-businessweek