Next capitalist economic crisis developing?

[ckaihatsu]

Continuation from prior thread, 'Next capitalist economic crisis incoming?', at http://www.revleft.com/vb/threads/19...risis-incoming


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http://www.wsws.org/en/articles/2017.../cana-m25.html


Crisis at Canadian subprime mortgage lender

By Roger Jordan

25 May 2017

The deepening crisis at Home Capital, a mortgage lender which provides financing to individuals failing to meet the criteria for loans from Canada’s major banks, has exposed the mounting fragility of the country’s economy. Despite assurances from government representatives and central bank officials that the difficulties are specific to the company, there are growing concerns Canada’s economy could be roiled by a housing bubble, record consumer debt, anemic growth, and the uncertain future of the North American Free Trade Agreement (NAFTA).

The Globe and Mail reported in a lengthy article last week that Home Capital came within hours of total collapse on May 1.

The crisis at Home Capital, which holds around 1 percent of Canadian mortgages, began March 27, when CEO Martin Reid was let go. Since then, savers in Home Capital’s high-interest savings accounts have withdrawn 94 percent of their deposits, leaving the company with a mere $120 million in deposits. The pace of withdrawals increased dramatically after the Ontario Securities Commission accused the lender on April 19 of providing misleading information about its mortgage business to investors, an allegation Home Capital has rejected. Since then, Home Capital’s share price has crashed by 70 percent.

Home Capital executives have repeatedly denied that they will require emergency assistance from the Bank of Canada. At the same time, they acknowledge that the firm only has financing to last several months and that the vast majority of this is drawn from a high interest credit line arranged with the Healthcare of Ontario Pension Plan (HOOPP).

Government officials have sought to downplay the broader impact of the crisis at Home Capital. Federal Finance Minister Bill Morneau said May 15, “We’ve always seen the Home Capital issue as one that’s a Home Capital issue. We don’t see a contagion risk here.” Bank of Canada Governor Stephen Poloz has insisted that a market-based solution can be found for Home Capital and without the Bank of Canada having to step in.

Whatever transpires in the coming weeks, the rapid development of such a crisis at Canada’s largest non-bank mortgage lender has exposed the underlying fragility of the country’s economy. No amount of assurances about the circumstances being specific to one company can disguise the fact that Canada’s property market is dangerously inflated and could trigger a broader economic collapse. Earlier this year, the Globe and Mail compared the situation in Canada’s property market to that in the United States on the eve of the 2007-08 crash. Poloz has previously noted that property prices, which were up on average 10 percent annually in April and more than 30 percent in Toronto, are unsustainable.

The percentage of GDP attributable to property sales is currently 1 percent higher than it was in the United States in 2007, on the eve of the subprime lending crisis and the collapse of the US housing market. David Rosenberg, chief economist at Gluskin Sheff, said in an interview with BNN that the two situations bear a striking resemblance. He noted that the price of an average home in Toronto presently absorbs 13 years of family income, adding, “We’ve never seen this before.”

The unsustainability of the housing market is underscored by the surge in consumer and household debt, both of which are at record levels. Average household debt currently stands at 167 percent of disposable income. This was a major factor behind Moody’s decision earlier this month to slash the credit ratings of Canada’s six major banks. “Today’s downgrade of the Canadian banks reflects our ongoing concerns that expanding levels of private-sector debt could weaken asset quality in the future,” Moody’s said in a statement.

These unprecedented debt levels are linked to stagnant or declining incomes. In 2012, an OECD report noted that among developed countries, Canada had the fifth highest percentage of low-wage workers, earning less than two-thirds of the median income. In 2016, Statistics Canada figures showed that wage growth for salaried workers was zero and there was a decline for hourly workers of 0.4 percent. Such grim figures understate the problem, since they include high-earning positions where incomes have grown significantly.

Home Capital is not the only financial institution to feel the effects of this. Equitable Bank, the country’s ninth largest, has also experienced a run on deposits, although of a much smaller scale than Home Capital. It was forced to arrange a $2 billion lifeline with the major banks in early May. Investors have also increased their bets against the major banks themselves. This mounting uncertainty has led to increased pressure on the Canadian dollar, which is the worst performing major currency in 2017.

Canada’s sluggish economy has come to rely increasingly on a red-hot housing market to sustain growth. Bloomberg noted that in the provinces with the fastest growth rates, including British Columbia, two-fifths of growth could be put down to the real estate sector and related construction projects.

Canada managed to weather the 2008-09 global economic crisis better than most other advanced capitalist economies. But since the bursting of the China-driven commodity-price boom and especially the collapse of world oil prices in 2014, Canada’s economy has performed worse than most of its major rivals. Tens of thousands of relatively good-paying jobs have been wiped out in the energy sector, above all in Alberta, and capital investment has dried up.

The Liberal government of Justin Trudeau promised to increase government spending when it came to power in 2015 to boost economic growth. In reality, its strategy is aimed at placing even more resources in the hands of the financial elite, through privatization and the creation of an infrastructure investment bank dedicated to promoting so-called Private Public Partnerships.

In a recent analysis titled “The worst scenario: What if Canada’s real estate bubble bursts?”, the CBC considered, not without considerable trepidation, the potential impact on the broader economy. It noted that unemployment would increase sharply, consumer spending would fall as borrowers would no longer be able to use their property as collateral in accessing more credit, and the dollar would drop even further, making imports more expensive.

Experts cited in the CBC report stressed that such a worst case scenario was unlikely, due to the efforts of regulators to deflate the housing bubble. But there are other factors at play.

The Bank of Canada has retained historically low interest rates of 0.5 percent since the 2014-15 oil price collapse. It has been prevented from raising rates by a sluggish economy. According to Canada’s central bank the economy will grow by just 2.3 percent this year and the Conference Board of Canada recently projected growth will fall back below 2 percent in 2018.

Meanwhile, the US Federal Reserve has begun what it promises will be a series of rate hikes aimed at returning interest rates to historic levels. A growing gap between US and Canadian rates would further depress the Canadian dollar, fueling inflation and making Canadian companies more susceptible to foreign takeover. This in turn would place pressure on the Bank of Canada to raise interest rates, although this could roil the housing market, resulting in a bursting rather than a controlled deflating of the housing bubble.

The deepening political crisis in the United States will also have major ramifications for Canada. Since Donald Trump won election to the White House last November, the Trudeau government has made its first priority retaining the Canadian bourgeoisie’s privileged access to the US market and limiting the fallout from Trump’s protectionist, “America First” agenda. Toward this end, the Liberal government has moved to further strengthen Canadian imperialism’s military-strategic partnership with Washington, pledging to “modernize” NORAD and increase Canada’s support for the military-strategic offensives that the US is mounting around the world to maintain its global hegemony under conditions where its relative economic power has been massively eroded.

Nevertheless, Canada and the US have become embroiled in a series of tit-for-tat trade disputes and this even before Ottawa, Washington, and Mexico City launch negotiations on revising the North American Free Trade Agreement (NAFTA). Uncertainty surrounding the NAFTA talks—Trump has threatened to scrap the deal entirely—could become a significant factor exacerbating any economic downturn in Canada, since Canada depends on the US market for three-quarters of its exports. Bank of Canada Governor Polloz has warned that concerns about NAFTA’s future have already led to a decline in business investment.

Copyright © 1998-2017 World Socialist Web Site - All rights reserved

[TomLeftist]

Ckaihatsu: Indeed, capitalism has never worked not even in the USA since 4th of July of 1776. Capitalism has only worked for the middle classes and the upper classes who always have been a minority (Like 30% to 40% of USA), and has only provided pain, working, working working and working, depression, depression and depression for about 60% of USA. The problem I see is that what we have in the USA is a dictatorship of the people who suffer from the Stockholm Personality Disorder (The majority of americans) against a minority who does not suffer from The Stockholm Disorder

Continuation from prior thread, 'Next capitalist economic crisis incoming?', at http://www.revleft.com/vb/threads/19...risis-incoming


---


http://www.wsws.org/en/articles/2017.../cana-m25.html


Crisis at Canadian subprime mortgage lender

By Roger Jordan

25 May 2017

The deepening crisis at Home Capital, a mortgage lender which provides financing to individuals failing to meet the criteria for loans from Canada’s major banks, has exposed the mounting fragility of the country’s economy. Despite assurances from government representatives and central bank officials that the difficulties are specific to the company, there are growing concerns Canada’s economy could be roiled by a housing bubble, record consumer debt, anemic growth, and the uncertain future of the North American Free Trade Agreement (NAFTA).

The Globe and Mail reported in a lengthy article last week that Home Capital came within hours of total collapse on May 1.

The crisis at Home Capital, which holds around 1 percent of Canadian mortgages, began March 27, when CEO Martin Reid was let go. Since then, savers in Home Capital’s high-interest savings accounts have withdrawn 94 percent of their deposits, leaving the company with a mere $120 million in deposits. The pace of withdrawals increased dramatically after the Ontario Securities Commission accused the lender on April 19 of providing misleading information about its mortgage business to investors, an allegation Home Capital has rejected. Since then, Home Capital’s share price has crashed by 70 percent.

Home Capital executives have repeatedly denied that they will require emergency assistance from the Bank of Canada. At the same time, they acknowledge that the firm only has financing to last several months and that the vast majority of this is drawn from a high interest credit line arranged with the Healthcare of Ontario Pension Plan (HOOPP).

Government officials have sought to downplay the broader impact of the crisis at Home Capital. Federal Finance Minister Bill Morneau said May 15, “We’ve always seen the Home Capital issue as one that’s a Home Capital issue. We don’t see a contagion risk here.” Bank of Canada Governor Stephen Poloz has insisted that a market-based solution can be found for Home Capital and without the Bank of Canada having to step in.

Whatever transpires in the coming weeks, the rapid development of such a crisis at Canada’s largest non-bank mortgage lender has exposed the underlying fragility of the country’s economy. No amount of assurances about the circumstances being specific to one company can disguise the fact that Canada’s property market is dangerously inflated and could trigger a broader economic collapse. Earlier this year, the Globe and Mail compared the situation in Canada’s property market to that in the United States on the eve of the 2007-08 crash. Poloz has previously noted that property prices, which were up on average 10 percent annually in April and more than 30 percent in Toronto, are unsustainable.

The percentage of GDP attributable to property sales is currently 1 percent higher than it was in the United States in 2007, on the eve of the subprime lending crisis and the collapse of the US housing market. David Rosenberg, chief economist at Gluskin Sheff, said in an interview with BNN that the two situations bear a striking resemblance. He noted that the price of an average home in Toronto presently absorbs 13 years of family income, adding, “We’ve never seen this before.”

The unsustainability of the housing market is underscored by the surge in consumer and household debt, both of which are at record levels. Average household debt currently stands at 167 percent of disposable income. This was a major factor behind Moody’s decision earlier this month to slash the credit ratings of Canada’s six major banks. “Today’s downgrade of the Canadian banks reflects our ongoing concerns that expanding levels of private-sector debt could weaken asset quality in the future,” Moody’s said in a statement.

These unprecedented debt levels are linked to stagnant or declining incomes. In 2012, an OECD report noted that among developed countries, Canada had the fifth highest percentage of low-wage workers, earning less than two-thirds of the median income. In 2016, Statistics Canada figures showed that wage growth for salaried workers was zero and there was a decline for hourly workers of 0.4 percent. Such grim figures understate the problem, since they include high-earning positions where incomes have grown significantly.

Home Capital is not the only financial institution to feel the effects of this. Equitable Bank, the country’s ninth largest, has also experienced a run on deposits, although of a much smaller scale than Home Capital. It was forced to arrange a $2 billion lifeline with the major banks in early May. Investors have also increased their bets against the major banks themselves. This mounting uncertainty has led to increased pressure on the Canadian dollar, which is the worst performing major currency in 2017.

Canada’s sluggish economy has come to rely increasingly on a red-hot housing market to sustain growth. Bloomberg noted that in the provinces with the fastest growth rates, including British Columbia, two-fifths of growth could be put down to the real estate sector and related construction projects.

Canada managed to weather the 2008-09 global economic crisis better than most other advanced capitalist economies. But since the bursting of the China-driven commodity-price boom and especially the collapse of world oil prices in 2014, Canada’s economy has performed worse than most of its major rivals. Tens of thousands of relatively good-paying jobs have been wiped out in the energy sector, above all in Alberta, and capital investment has dried up.

The Liberal government of Justin Trudeau promised to increase government spending when it came to power in 2015 to boost economic growth. In reality, its strategy is aimed at placing even more resources in the hands of the financial elite, through privatization and the creation of an infrastructure investment bank dedicated to promoting so-called Private Public Partnerships.

In a recent analysis titled “The worst scenario: What if Canada’s real estate bubble bursts?”, the CBC considered, not without considerable trepidation, the potential impact on the broader economy. It noted that unemployment would increase sharply, consumer spending would fall as borrowers would no longer be able to use their property as collateral in accessing more credit, and the dollar would drop even further, making imports more expensive.

Experts cited in the CBC report stressed that such a worst case scenario was unlikely, due to the efforts of regulators to deflate the housing bubble. But there are other factors at play.

The Bank of Canada has retained historically low interest rates of 0.5 percent since the 2014-15 oil price collapse. It has been prevented from raising rates by a sluggish economy. According to Canada’s central bank the economy will grow by just 2.3 percent this year and the Conference Board of Canada recently projected growth will fall back below 2 percent in 2018.

Meanwhile, the US Federal Reserve has begun what it promises will be a series of rate hikes aimed at returning interest rates to historic levels. A growing gap between US and Canadian rates would further depress the Canadian dollar, fueling inflation and making Canadian companies more susceptible to foreign takeover. This in turn would place pressure on the Bank of Canada to raise interest rates, although this could roil the housing market, resulting in a bursting rather than a controlled deflating of the housing bubble.

The deepening political crisis in the United States will also have major ramifications for Canada. Since Donald Trump won election to the White House last November, the Trudeau government has made its first priority retaining the Canadian bourgeoisie’s privileged access to the US market and limiting the fallout from Trump’s protectionist, “America First” agenda. Toward this end, the Liberal government has moved to further strengthen Canadian imperialism’s military-strategic partnership with Washington, pledging to “modernize” NORAD and increase Canada’s support for the military-strategic offensives that the US is mounting around the world to maintain its global hegemony under conditions where its relative economic power has been massively eroded.

Nevertheless, Canada and the US have become embroiled in a series of tit-for-tat trade disputes and this even before Ottawa, Washington, and Mexico City launch negotiations on revising the North American Free Trade Agreement (NAFTA). Uncertainty surrounding the NAFTA talks—Trump has threatened to scrap the deal entirely—could become a significant factor exacerbating any economic downturn in Canada, since Canada depends on the US market for three-quarters of its exports. Bank of Canada Governor Polloz has warned that concerns about NAFTA’s future have already led to a decline in business investment.

Copyright © 1998-2017 World Socialist Web Site - All rights reserved

[TomLeftist]

Another bad thing against the possibility of a radical change, of the destruction of the US capitalist state to be replaced by a socialist workers state. Is that the majority of poor americans and even part of the middle class are too conformists and have very low expectations, are passive pacifists and not active violent haters of what ever causes them pain. I've noticed the extreme love toward working, even toward domestic house work (like mowing lawns, cleaning the house). Like if most people, most oppressed lived in Sparta, Ancient Greece in their other life.

Many young people have no trouble, not being able to never be a doctor, a lawyer, a pilot, a musician, an economist, an artist. etc. or any other good profession, because university professions are literally off-limits economically for the great majority of young people. So I don't understand how can they have no trouble accepting the hell that the great majoroity of young americans are accepting, like working picking up the supermarket shopping cars at Walmarts, Target etc. in the freezing cold months and in the baking hot months of summer.

I don't understand how can people accept a punishment, a low death penalty of working at Walmart, Mcdonalds etc. very painful depressing jobs that I consider slow death penalty. I don't understand how can they accept a life of working working and working more in order not to enjoy their paychecks that they have been creating thru busting their bodies and minds at shitty repetitive jobs. In order for that weekly payments to be directed toward the payment of monthly bills, toward The Pentagon, toward the state of Israel. What a hell USA and many countries that have the same economoic model of USA is. A hell of people working not to enjoy their wealth that they create working hard in restaurants, parties, vacation cruises and fun. But toward trickling-up that wealth toward the upper classes.

That's why Jim Morrison said in a concert: "You are all a bunch of slaves"



So what I see really is a dictatorship of "You are all a bunch of slaves" against a minority of people who are not slaves and who hate the life that they live in this slow suicide, slow death penalty called USA

Continuation from prior thread, 'Next capitalist economic crisis incoming?', at http://www.revleft.com/vb/threads/19...risis-incoming


---


http://www.wsws.org/en/articles/2017.../cana-m25.html


Crisis at Canadian subprime mortgage lender

By Roger Jordan

25 May 2017

The deepening crisis at Home Capital, a mortgage lender which provides financing to individuals failing to meet the criteria for loans from Canada’s major banks, has exposed the mounting fragility of the country’s economy. Despite assurances from government representatives and central bank officials that the difficulties are specific to the company, there are growing concerns Canada’s economy could be roiled by a housing bubble, record consumer debt, anemic growth, and the uncertain future of the North American Free Trade Agreement (NAFTA).

The Globe and Mail reported in a lengthy article last week that Home Capital came within hours of total collapse on May 1.

The crisis at Home Capital, which holds around 1 percent of Canadian mortgages, began March 27, when CEO Martin Reid was let go. Since then, savers in Home Capital’s high-interest savings accounts have withdrawn 94 percent of their deposits, leaving the company with a mere $120 million in deposits. The pace of withdrawals increased dramatically after the Ontario Securities Commission accused the lender on April 19 of providing misleading information about its mortgage business to investors, an allegation Home Capital has rejected. Since then, Home Capital’s share price has crashed by 70 percent.

Home Capital executives have repeatedly denied that they will require emergency assistance from the Bank of Canada. At the same time, they acknowledge that the firm only has financing to last several months and that the vast majority of this is drawn from a high interest credit line arranged with the Healthcare of Ontario Pension Plan (HOOPP).

Government officials have sought to downplay the broader impact of the crisis at Home Capital. Federal Finance Minister Bill Morneau said May 15, “We’ve always seen the Home Capital issue as one that’s a Home Capital issue. We don’t see a contagion risk here.” Bank of Canada Governor Stephen Poloz has insisted that a market-based solution can be found for Home Capital and without the Bank of Canada having to step in.

Whatever transpires in the coming weeks, the rapid development of such a crisis at Canada’s largest non-bank mortgage lender has exposed the underlying fragility of the country’s economy. No amount of assurances about the circumstances being specific to one company can disguise the fact that Canada’s property market is dangerously inflated and could trigger a broader economic collapse. Earlier this year, the Globe and Mail compared the situation in Canada’s property market to that in the United States on the eve of the 2007-08 crash. Poloz has previously noted that property prices, which were up on average 10 percent annually in April and more than 30 percent in Toronto, are unsustainable.

The percentage of GDP attributable to property sales is currently 1 percent higher than it was in the United States in 2007, on the eve of the subprime lending crisis and the collapse of the US housing market. David Rosenberg, chief economist at Gluskin Sheff, said in an interview with BNN that the two situations bear a striking resemblance. He noted that the price of an average home in Toronto presently absorbs 13 years of family income, adding, “We’ve never seen this before.”

The unsustainability of the housing market is underscored by the surge in consumer and household debt, both of which are at record levels. Average household debt currently stands at 167 percent of disposable income. This was a major factor behind Moody’s decision earlier this month to slash the credit ratings of Canada’s six major banks. “Today’s downgrade of the Canadian banks reflects our ongoing concerns that expanding levels of private-sector debt could weaken asset quality in the future,” Moody’s said in a statement.

These unprecedented debt levels are linked to stagnant or declining incomes. In 2012, an OECD report noted that among developed countries, Canada had the fifth highest percentage of low-wage workers, earning less than two-thirds of the median income. In 2016, Statistics Canada figures showed that wage growth for salaried workers was zero and there was a decline for hourly workers of 0.4 percent. Such grim figures understate the problem, since they include high-earning positions where incomes have grown significantly.

Home Capital is not the only financial institution to feel the effects of this. Equitable Bank, the country’s ninth largest, has also experienced a run on deposits, although of a much smaller scale than Home Capital. It was forced to arrange a $2 billion lifeline with the major banks in early May. Investors have also increased their bets against the major banks themselves. This mounting uncertainty has led to increased pressure on the Canadian dollar, which is the worst performing major currency in 2017.

Canada’s sluggish economy has come to rely increasingly on a red-hot housing market to sustain growth. Bloomberg noted that in the provinces with the fastest growth rates, including British Columbia, two-fifths of growth could be put down to the real estate sector and related construction projects.

Canada managed to weather the 2008-09 global economic crisis better than most other advanced capitalist economies. But since the bursting of the China-driven commodity-price boom and especially the collapse of world oil prices in 2014, Canada’s economy has performed worse than most of its major rivals. Tens of thousands of relatively good-paying jobs have been wiped out in the energy sector, above all in Alberta, and capital investment has dried up.

The Liberal government of Justin Trudeau promised to increase government spending when it came to power in 2015 to boost economic growth. In reality, its strategy is aimed at placing even more resources in the hands of the financial elite, through privatization and the creation of an infrastructure investment bank dedicated to promoting so-called Private Public Partnerships.

In a recent analysis titled “The worst scenario: What if Canada’s real estate bubble bursts?”, the CBC considered, not without considerable trepidation, the potential impact on the broader economy. It noted that unemployment would increase sharply, consumer spending would fall as borrowers would no longer be able to use their property as collateral in accessing more credit, and the dollar would drop even further, making imports more expensive.

Experts cited in the CBC report stressed that such a worst case scenario was unlikely, due to the efforts of regulators to deflate the housing bubble. But there are other factors at play.

The Bank of Canada has retained historically low interest rates of 0.5 percent since the 2014-15 oil price collapse. It has been prevented from raising rates by a sluggish economy. According to Canada’s central bank the economy will grow by just 2.3 percent this year and the Conference Board of Canada recently projected growth will fall back below 2 percent in 2018.

Meanwhile, the US Federal Reserve has begun what it promises will be a series of rate hikes aimed at returning interest rates to historic levels. A growing gap between US and Canadian rates would further depress the Canadian dollar, fueling inflation and making Canadian companies more susceptible to foreign takeover. This in turn would place pressure on the Bank of Canada to raise interest rates, although this could roil the housing market, resulting in a bursting rather than a controlled deflating of the housing bubble.

The deepening political crisis in the United States will also have major ramifications for Canada. Since Donald Trump won election to the White House last November, the Trudeau government has made its first priority retaining the Canadian bourgeoisie’s privileged access to the US market and limiting the fallout from Trump’s protectionist, “America First” agenda. Toward this end, the Liberal government has moved to further strengthen Canadian imperialism’s military-strategic partnership with Washington, pledging to “modernize” NORAD and increase Canada’s support for the military-strategic offensives that the US is mounting around the world to maintain its global hegemony under conditions where its relative economic power has been massively eroded.

Nevertheless, Canada and the US have become embroiled in a series of tit-for-tat trade disputes and this even before Ottawa, Washington, and Mexico City launch negotiations on revising the North American Free Trade Agreement (NAFTA). Uncertainty surrounding the NAFTA talks—Trump has threatened to scrap the deal entirely—could become a significant factor exacerbating any economic downturn in Canada, since Canada depends on the US market for three-quarters of its exports. Bank of Canada Governor Polloz has warned that concerns about NAFTA’s future have already led to a decline in business investment.

Copyright © 1998-2017 World Socialist Web Site - All rights reserved

[ckaihatsu]

http://www.wsws.org/en/articles/2017.../usec-j06.html


Uncertainty grows over US Fed’s interest rate moves

By Nick Beams

6 June 2017

While it remains very likely that the US Federal Reserve will lift its base interest rate by a further 0.25 percentage points when it meets later this month, there is growing uncertainty about where monetary policy might be headed after that.

The Fed’s agenda is to return to a more “normalised” policy after almost nine years of ultra-low interest rates and the pumping of trillions of dollars into the financial system following the crisis of 2008. However, conditions in the US and the world economy are far from what was considered previously to be the norm.

This is clearly evidenced by the fact that the economic “model,” on which the Fed and other capitalist economic institutions have based their decisions in the past, has to all intents and purposes broken down.

One of its key components was the so-called Phillips curve, first advanced in 1958. It maintained that there was a relationship between the level of unemployment, wages and inflation. When near-full employment conditions were reached, the model held, this led to an upward movement of wages and prices.

Consequently, monetary policy should be directed to ensuring that interest rates were kept at low enough level to ensure that the economy continued to grow, but sufficiently high to ensure that wages and prices were kept under control.

Before the eruption of the financial crisis, the so-called neutral rate at which the economy would remain in “balance” was regarded as being around 3 percent. Since the financial crisis, however, all the assumptions on which this model was based have gone awry, pointing to far-reaching changes in the very structure of the economy.

The stated aim of Fed policy is to keep inflation at or near 2 percent, while ensuring at or near full employment. According to the Phillips curve, as the unemployment rate comes down so inflation should start to rise. Yet this has not taken place.

According to official figures, the core inflation rate has been below the Fed’s target of 2 percent for 58 months in a row, while the US unemployment rate has halved. And the inflation trend is down, with the rate of 1.5 percent for April, below the figure for a year ago.

Commenting on the inflation data, Lael Brainard, a member of the Fed’s policy-setting open market committee and regarded as somewhat of a “dove” on interest rates, said: “That reading marks a considerable shortfall from the committee’s 2 percent objective. And there does not seem to have been any progress over the past year or so.”

While indicating during a speech in New York that she favours a further interest rate rise “soon,” Brainard said that if soft inflation data persisted “that would be concerning and, ultimately could lead me to reassess the appropriate path of policy.”

Wages are showing the same pattern as inflation. According to the Phillips model, wages should start to rise with the fall in unemployment. This is also not taking place. The 2.5 percent annual growth in average hourly earnings is no higher than this time a year ago and well below the growth of 3.5 percent before the financial crisis.

The wages data point to an underlying structural change in the US economy—the replacement of better paid full-time jobs with part-time and casual employment.

A study by Harvard economist Lawrence Katz and Princeton economist Alan Krueger released in December last year found that 94 percent of the 10 million jobs created during the Obama administration were temporary, contract or part-time positions. The proportion of workers engaged in such jobs rose from 10.7 percent to 15.8 percent, with 1 million fewer workers engaged in full-time jobs than at the start of the recession of 2008-2009.

This trend was underscored in the latest jobs data released last Friday. The US unemployment rate dropped to 4.3 percent from 4.4 percent but this was due in no small measure to a 429,000 decline in the size of the labour force as workers dropped out of the jobs market.

Non-farm payrolls increased by 138,000 in May, while jobs growth figures for March and April were revised down by 66,000. The number of retail jobs fell for the third month in a row amid a spate of store closures by the major retail chains.

There are, however, some shortages in areas of skilled labour. In an indication of the class character of all its policies, the Fed noted that it would be prepared to lift interest rates if wages growth began to rise unexpectedly.

Another significant factor in the shattering of what was previously regarded as the “normal” pattern of economic development is the rise of financial parasitism. In the days when the Phillips model was first advanced, increased profits by corporations led to further productive investment, increased economic output and rising wages. That is no longer the case.

Profits are now increasingly not used for new investment. They are deployed in support of “financial engineering,” involving share buybacks and increased dividends, as corporations operate under continuous pressure from hedge funds and investment funds to increase “shareholder value.”

The trends in the US economy are being repeated elsewhere. In Britain, workers’ wages are still some 10 percent below where they were before the global financial crisis, while Australia is showing the lowest growth in wages since records started to be kept. This is despite official data in both countries showing relatively low unemployment levels.

One of the main factors at work in all the advanced economies is the falling levels of investment in the real, as opposed to the financial, economy, which has depressed productivity growth.

The international character of these tendencies was underscored in the Global Economic Prospects reported issued by the World Bank on Sunday. It pointed to a “fragile” recovery in the global economy but warned that a slowdown in investment was threatening productivity growth in emerging economies and that long-term damage might already have been done.

According to the report: “Even if the expected modest rebound in investment across [emerging and developing economies] materialises, slowing capital accumulation in recent years may have already reduced potential growth.”

Copyright © 1998-2017 World Socialist Web Site - All rights reserved

[ckaihatsu]

via wsws.org

The Beijing government is concerned about purchases of overseas assets using financial mechanisms outside their control.

More...

[ckaihatsu]

Canadian home sales fell the most in five years last month. That didn't stop an increase in prices, which were up 18 percent nationwide from a year earlier. When you consider that most houses are leveraged assets, this represents huge gains for homeowners.


More...

[ckaihatsu]

via wsws.org

While noting an upturn in the global economy, the BIS said sentiment had swung more than facts and a series of “tensions” and “paradoxes” remained.

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[ckaihatsu]

Parson Young 21 June 2017

https://www.marxist.com/the-xuzhou-b...-barbarism.htm

[ckaihatsu]

Capitalism doesn't have a plan, you know. It only goes in one direction and it doesn't care what you want.


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[ckaihatsu]

via wsws.org

The IMF has not only revised down its projections of US growth but said the country’s “economic model” was failing to deliver “broadly shared” income growth.

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[BIXX]

I'm not positive this belongs in theory. Of course I'm not an admin, but this is just a moralizing rant.


Can you explain what theory is being presented here?

[ckaihatsu]

via wsws.org

The impact of years of wage cuts was revealed in a trade union survey of 6,500 workers, which found that two out of five of those surveyed said they were unable to save any money.

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[ckaihatsu]

via wsws.org

The economic model the Fed has broken down under conditions in which parasitism has become the dominant form of profit accumulation.

More...

[ckaihatsu]

via wsws.org

US automakers have experienced a six month declines in sales for the first time since 2009, the year of the GM and Chrysler bankruptcies.

More...

[ckaihatsu]

I'm not positive this belongs in theory. Of course I'm not an admin, but this is just a moralizing rant.


Can you explain what theory is being presented here?

Just seeing this post now.

I've been using this thread to collect any and all news items regarding ongoing economic bad news, basically, as supporting data for the 'theory' that capitalism produces its own gravediggers.

I've only been doing the RSS-feed thing to source news for about a week-and-a-half now, so any feedback and/or concrete suggestions would be welcome.

[ckaihatsu]

Yet another international organization is warning about Canada's major debt problems, mostly tied to a housing addiction. The Bank for International Settlements (BIS), an international banking organization that serves as a bank for central banks, is flashing warning indicators for Canada.


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