How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2017 at the latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  But now, the central banks of the world are starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates recently.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence that such a move will be beneficial, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time.  Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve is currently debating the legality of negative interest rates in the future, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or worse.  And of course the silly idea of negative interest rates needs to be abandoned as well.

But let's be brutally honest.  What we are really witnessing these days is the death of an obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

How to Prepare for the Next Big Crash

As we have noted in the previous article, the risk of the next big economic crash continues to loom large, and it may be too late to actually prevent it from occurring entirely.  That's not to say that there aren't things that should be done to prepare for it to make it less catastrophic, though.  Back in 2014, the TSAP had predicted that a crash would occur within a few short years, and we had written an article then discussing how to prevent it before it occurs or at least take the edge off of it, while ending the previous economic "stagpression" for good.   And we should note that these things would indeed help take the edge off of the next looming financial crisis as well.

Two things come to mind right away:  1) a Universal Basic Income Guarantee for all, an idea that is LONG overdue, and 2) Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Additionally, we need to better regulate the Wall Street casino so such a crisis could never happen again, and also JAIL the banksters who caused the crisis (instead of bailing them out) like Iceland did.  A debt jubilee would be even better still, but even the things we just mentioned are a fairly tall order for a government who is bought and paid for by the banksters/oligarchs.  While other things need to be done as well in the long run, such as critical investments in infrastructure and education, the aforementioned measures would go a long way towards fixing our ailing economy.

Those are the things that should be done at the government level, of course.  At the individual level, there is really not much one can do except get OUT of the stock market while you still can, and take at least most of your money OUT of the big banks (before the "bail-ins" begin) and put it into smaller banks, credit unions, or even under your mattress.  Or even in a big, brown bag inside a zoo.

End This Depression NOW--For Real This Time!

The latest news shows that the Dow Jones recently reached a record high, and remains above 16,000.  Corporate profits are at a record high, and even the unemployment rate has FINALLY dropped to a 5-year low of less than 7%.  So by these numbers, some people seem to think that the recession is finally over for good.  Happy days are here again!  So cue the music, Maestro:

HALLLELUJAH!  HALLELUJAH!  HALLELUJAH, HALLELUJAH, HALL.....er, wait a minute.  Seriously?  This is the kind of thing that passes for "recovery" these days?  Please.  The majority of Americans would certainly NOT consider happy days to be here again!  Certainly not with sobering statistics like these:

• A real unemployment rate (U6) that is actually in the double-digits (13%), and not falling nearly quickly enough.  In fact, when long-term discouraged workers are included and added to U6, it reaches nearly 25%, and has actually risen since the phony "recovery" began in 2009.
• A labor force participation rate that has fallen to a 35-year low, reflecting (in part) those discouraged workers who simply gave up looking for a job.
• A poverty rate that remains stubbornly higher than in 2009, as evident in the record number of people on programs like SNAP (food stamps).
• Near-record levels of income and wealth inequality, approaching Gilded Age levels.  The top 1% controls nearly half of the nation's wealth, while the bottom 80% are left to fight over crumbs.
• Falling real wages, with a real minimum wage that is at least 30% lower than in the late 1960s despite a doubling of productivity.
• Cities declaring bankruptcy.  Detroit is the canary in the coal mine.
• Record levels of student loan debt ($1 trillion), combined with considerable unemployment and underemployment of college graduates.
• A national debt of over $17 trillion, and growing despite fairly harsh austerity measures.
• A real inflation rate that is nearly 10% when measured the way it was in 1980 and earlier.  Combined with the real unemployment rate, the real "misery index" would be a whopping 22-33.  Ouch!

So by just about any rational measure, we are still stuck in a pretty deep depression.   In fact, the progressive site Daily Kos coined a new term to describe it:  stagpression (a combination of stagnation and depression).  So why the huge disconnect between corporate profits and the stock market with the reality on the ground?  The answer is pretty simple.  Our government has been giving money, favors, and tax cuts to the rich and mega-corporations for years now, and what have the plutocrats done for us in return?  Sit on their massive cash, pay CEOs more, cannibalize their workforces, and buy back (i.e. manipulate) their own stock to paper over their declining sales.  And historically, what do they do if they get higher marginal tax rates?  Re-invest more in their own businesses and/or hire more workers.  Counterintuitive, yes, but it actually makes sense when you think about it.  As for "quantitative easing", the Feral Reserve has been printing trillions of dollars out of thin air, and nearly all of it goes to the big banks (i.e. the plutocrats) where it certainly does NOT trickle-down in any meaningful way.  To date, both fiscal and monetary policies have consisted of weak and inefficient half-measures, where the benefits accrue to the elites while the consequences (inflation, debt) accrue to the rest of us.  Thus, the rich get richer, the poor get poorer, and the middle class continues to shrink.  And the customers become too broke to buy anything, and the economy continues to stagnate or sink even further in a downward spiral.   No wonder our "recovery" has been so hollow!

So how can we break this vicious cycle for good, before the resulting bubble bursts leading to the next big crash?  The answer is really quite clear:  adopt the TSAP party platform ASAP.   But since it is unrealistic to expect either corporate party in the elephant/jackass duopoly to take up an entire platform that literally threatens their own interests, we have devised a list of the highest-priority measures to take before the inequality-fueled crash of 2016 happens:

1. Raise the top marginal tax rate to at least 50% (if not 70%) for incomes above $1 million, and simplify the tax code by removing loopholes geared towards the wealthy.
2. Reduce the corporate tax rate to 20-25%, remove all loopholes, and tax only retained earnings.
3. Reduce tax rates for the bottom 80% of Americans, and un-tax small businesses with earnings less than $100,000 per year.
4. Raise the minimum wage to at least $10/hour if not higher, and index it to inflation from now on.
5. Remove the "sequester" cuts ASAP, and sharply increase funding for infrastructure, education, green energy, and other crucial goals to put Americans back to work.

Of course, it would even better if the entire TSAP platform were adopted, but doing just these five things alone would probably be enough to, in the words of Paul Krugman, "end this depression now".  Because that's what this "recession" really is.  And ending it is long overdue--five years overdue to be precise.

But if we could do just one thing that could be done to end the stagpression quickly, it would be this:  replace "quantitative easing" (that really only benefits the rich) with direct payments of about $2000 per person or so to ALL Americans, yesterday.  It would take an Act of Congress to enable the Fed to do such a thing, but it would be well worth it.  Of course, followers of the TSAP know that we have long advocated a guaranteed basic income (citizen's dividend) for all Americans period with no strings attached, ideally funded via various kinds of tax revenue such as carbon taxes and financial transactions taxes.  But this alternative means to the same end would be the next best thing, at least temporarily until our other ideas get implemented.  And if it happens, the depression will be over and full employment restored within a year or two--provided it does not end abruptly without some of our other measures to replace it next year.  So what are we waiting for?

What the Obamacare Ruling Means

NOTE: This post is on both the TSAP blog and the Twenty-One Debunked blog

The recent Supreme Court ruling on the Affordable Care Act ("Obamacare") was a mixed bag overall. The individual mandate (which the TSAP does not support) was upheld, but as part of the government's taxing power rather than under the Commerce Clause. While it is clearly a stretch to say it is constitutional because it is a tax (just think of poll taxes), and thus unfortunately provides a roadmap on how to make an end-run around some parts of the Constitution in the future, at least the Court recognized that the Feds do not have unlimited power under the Commerce Clause. Thus, the ruling took some of the wind out of the sails of the dangerous Gonzalez v. Raich precedent in 2005.

One thing the Court did strike down was the primary mechanism for ensuring state compliance with the Medicaid expansion, namely the withholding of existing federal Medicaid funds as a penalty for noncompliance. This was basically the same form of coercion used by the feds to force states to raise the drinking age to 21 in the 1980s, which was upheld by South Dakota v. Dole in 1987. Since then, this power has been used to coerce the states to follow other mandates as well, and not just ones related to highways. Thus if there is any silver lining to the Obamacare ruling, it is the fact that it may make it easier for states to lower the drinking age (and possibly even legalize cannabis) without federal interference.

As we have noted before, the TSAP supports a single-payer healthcare system similar to what Canada currently has, which is also what President Obama originally wanted as recently as 2008. Anything less would be uncivilized.