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Excerpts from the Daily Bell:
Key indicators show that US is already in recession
Simon Black – March 16, 2016
Much of the (Federal Reserve) data show that manufacturing is shrinking. Or to be even more clear, that the US is in a manufacturing recession.
Prosperity is quite simple. You have to produce more than you consume.
Strangely, though, the financial establishment cheers when consumption is up. And they totally ignore the data when production is down.
And no surprise, if you look at the long-term data you’ll see that a manufacturing downturn (i.e. less production) almost invariably precedes a recession.
There were large downturns in manufacturing and industrial production in 2008, 2001, 1990, 1980-81, 1974, 1970… and every other recession since the Great Depression.
Welcome to the world.
See the Recession Clock at the bottom of this page and the descriptive article at When Will the Next Recession Arrive?
There is a statistic that precedes recessions by an average of two years: Percentage Change from Previous Year of Federal Debt as a Percentage of GDP.
It may be a bit difficult to wrap your mind around — a percentage of a percentage — but fundamentally it tells you reductions in federal debt lead to recessions.
There is an average of a two-year lag between when the trend line falls below 0 and we have a recession. After the 2008 recession, the line again fell below 0 at the beginning of 2015.
On average, we would expect a recession the beginning of 2017.
Why would anyone be surprised? Federal debt currently results from federal deficits, and deficits add stimulus dollars to the economy.
Money is economic fuel. Reducing the money supply is like turning down the thermostat. The economy cools.
The major error in the article is this line: “Today government debt exceeds $19 trillion, well in excess of 100% of GDP. They don’t have the ability to bail anyone out, including themselves.“
Two problems with that:
1. The federal government, being Monetarily Sovereign, never can run short of its own sovereign currency, the dollar.
2. Federal debt is nothing more than the total to T-security accounts at the Federal Reserve Bank. These accounts are paid off the way any bank pays off its accounts: By debiting the accounts and crediting the holder’s checking accounts — a simple money transfer.
No new dollars needed.
Even if federal debt were $100 trillion, the federal government could:
–Pay it all off in one day, simply by transferring existing dollars
–Continue spending, forever.
Congress, the media and the economists, all of whom bribed by the richest 1%, are sure to claim we are headed for a disaster — which is true.
But they also will tell us this disaster can be thwarted only with cuts in social spending (Social Security, Medicare, Medicaid, food benefits, housing benefits, education benefits, etc.) — things that help the poor and middle classes.
And that is the Big Lie, designed to widen the Gap between the rich and the rest.
The disaster will be caused by (relative to GDP) reductions in deficit spending, and later will be cured by increases in deficit spending — as always.
After the increased deficit spending cures the recession, we once again will hear claims that the deficit and debt are too high and “unsustainable.”
We have documented how this charade has continued since at least 1940, and undoubtedly much earlier.
The Fed doesn’t have any room either. On average, the Fed cuts interest rates by 3.5% in a recession. And the smallest interest rate cut in any recession during the last 60 years was 2%.
Today, interest rates are at 0.25%… next to nothing.
That means that even if the next (i.e. current) recession is extremely mild and the Fed cuts by only 2%, interest rates are practically guaranteed to go below zero.
Sadly (for the economy), and contrary to popular belief, low interest rates do not stimulate the economy. The primary stimulant for any economy is money supply, and low rates reduce money supply growth. When rates are low, the federal government pays fewer interest dollars into the economy.
Once again we will cut deficit spending relative to our economy.
And once again we will enter an unnecessary recession, which we do on average, every five years.
And once again we will cure the recession by doing what we should have been doing all along to prevent the recession: Increase deficit spending ala the Ten Steps to Prosperity (below).
And once again, the debt hawks will claim the federal debt and deficit are “unsustainable,” as they have been doing for 75 years.
And once again, the poor and middle income/wealth/power groups (the “99%”) will suffer and drift further behind the rich.
The Big Lie is alive and well and living in Congress, the media, and classrooms all over America. The rich grow richer; the poor grow poorer; and the American dream drifts further from reality.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually Click here
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
THE RECESSION CLOCK
Recessions begin an average of 2 years after the blue line first dips below zero. A common phenomenon is for the line briefly to dip below zero, then rise above zero, before falling dramatically below zero. There was a brief dip below zero in 2015, followed by another dip – the familiar pre-recession pattern.
Recessions are cured by a rising red line.
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..
•No nation can tax itself into prosperity, nor grow without money growth.
•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)
•Deficit spending grows the supply of money
•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
•The limit to non-federal deficit spending is the ability to borrow.
•Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
•The single most important problem in economics is the Gap between rich and the rest..
•Austerity is the government’s method for widening the Gap between rich and poor.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..