From Popular Resistance
By Kevin Zeese and Margaret Flowers
The coronavirus epidemic is creating an ongoing teachable moment that could be used to transform the US economy. COVID-19 and the oil war are triggers leading to a recession that has its roots in record corporate and personal debt, long-term low wages and an artificially-inflated stockmarket. The shortcomings of US economic policy, the healthcare system, and workers' rights are being magnified by the current crisis.
Epidemiologists are reporting the coronavirus epidemic will last months, maybe more than a year. A survey of prominent academic economists released on Thursday found that a majority believe even if the outbreak proves to be limited, like the flu, it is likely to cause a major recession.
The teachable moment is an opportunity for people to understand more clearly why we need healthcare for all through national improved Medicare for all, why workers need paid sick and family leave so people can stay home from work and not infect others and why we need to end the extreme wealth divide so all people have the housing, food, healthcare, and income they need to thrive. Already, corporate media is reporting on "disaster socialism" and saying "everyone's a socialist in a pandemic." The failures of neoliberal capitalism are obvious. Tax breaks for corporations and the wealthy and trickle-down economics have failed.
People have significant power to demand change. Consumer spending accounts for approximately 70 percent of all economic growth. If consumers do not spend, there will be a recession. This translates into people power. If people go on a spending strike, they will impact the economy in ways the elites cannot ignore. It's time to demand an economy that serves the people.
The Economic Collapse Has Just Begun
This week, we interviewed economist Jack Rasmus on the Clearing The FOG podcast (available Monday night). He wrote last Sunday that a financial collapse was underway pointing to the combination of the coronavirus and the oil war. In the interview, he pointed to weaknesses in the economy that show the falsity of government officials who claim "the fundamentals are sound." Problems include record consumer, corporate and government debt, stagnant wages, workers who have not recovered from the last economic collapse, and financial markets addicted to trillions from the Federal Reserve. Even before the current collapse, college debt, unaffordable healthcare, and inadequate retirement funds were among the problems creating economic insecurity for most people. Already 40 percent of people in the US can't handle a $400 emergency and 60 percent could not handle a $1,000 surprise expense.
This weekend the Fed hit the panic button again, making an emergency announcement Sunday afternoon that it would be cutting interest rates to zero for the first time since the financial crisis. It also announced quantitative easing in the form of at least $700 billion of asset purchases. This will not change the course of the virus and it will not open supply lines from impacted countries or increase consumer spending. It shows that panic over the global recession is hitting very quickly.
Here are some aspects of the current financial crisis and what we can expect:
The Consumer Collapse: People in the United States are starting this recession in a weak financial situation. In December 2019, there was a record $4.19 trillion in personal debt breaking November's record of $4.16 trillion. Student debt was already in crisis, totaling $1.6 trillion and impacting 45 million people with a delinquency rate of more than 11 percent. Jack Rasmus reports that "only the US household consumer was holding up the US economy at year-end 2019."
Now, the economy is in a virtual standstill. Conferences and concerts are canceled, colleges are switching to virtual classes, public schools are closing, Broadway is dark, and professional sports are on hold. Disneyland, which stayed open through the last recession, has closed. There is no precedent for the economy shutting down so quickly.
Each of these closings, combined with people staying home, is driving a collapse of the economy, which will worsen. People are losing their jobs or experiencing reduced incomes causing them to spend less. This has a ripple effect, as the NY Times describes, "When restaurants close their doors, they no longer need tablecloths delivered by linen services or beer from local brewers. When people stop flying, they no longer need taxis to the airport or $5 bottles of water from the airport newsstand." They report that Zip Recruiter job posting for restaurants was down 26 percent compared to a year ago, catering is down 39 percent and there's been a 44 percent decline in aviation jobs.
The Corporate Collapse: Like people, corporations are holding record levels of debt. The corporate bond market will be shrinking and corporate credit will shut down. Already corporations are switching their credit lines to cash. This will lead to businesses being unable to refinance, which will be the prelude to mass defaults and bankruptcies. The collapse of corporations will lead to increasing unemployment, adding to the consumer collapse.
The first to be impacted will be the more than $2 trillion dollar US junk bond market, followed by the $3 trillion dollar BBB corporate debts. Rasmus explains these bonds are really also junk that has been improperly reclassified as BBB. That is $5 trillion at rapid risk for default including fossil fuel companies and retail stores, which will then spread to higher grade corporate debt.
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Kevin Zeese is co-chair of Come Home America, www.ComeHomeAmerica.US which seeks to end U.S. militarism and empire. He is also co-director of Its Our Economy, www.ItsOurEconomy.US which seeks to democratize the economy and give people greater (more...