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PARIS, THE NEW NORMAL? — Diana Johnstone files an in-depth report from Paris on the political reaction to the Charlie Hebdo shootings; The Treachery of the Black Political Class: Margaret Kimberley charts the rise and fall of the Congressional Black Caucus; The New Great Game: Pepe Escobar assays the game-changing new alliance between Russia and Turkey; Will the Frackers Go Bust? Joshua Frank reports on how the collapse of global oil prices might spell the end of the fracking frenzy in the Bakken Shale; The Future of the Giraffe: Ecologist Monica Bond reports from Tanzania on the frantic efforts to save one of the world’s most iconic species. Plus: Jeffrey St. Clair on Satire in the Service of Power; Chris Floyd on the Age of Terrorism and Absurdity; Mike Whitney on the Drop Dead Fed; John Wight on the rampant racism of Clint Eastwood’s “American Sniper;” John Walsh on Hillary Clinton and Lee Ballinger on the Gift of Anger.
Down the Drain

The Economy is in Big Trouble

by MIKE WHITNEY

Imagine the reaction at the White House when the Department of Labor released its weekly unemployment figures on Thursday. Jobless claims rose by 12,000 to 500,000 in the second week of August. There’s been no improvement in the jobs market in 9 months and now unemployment is edging upwards again. This wasn’t supposed to happen. The Obama administration had bet everything that the economy had turned the corner and would gradually get better. Many economists saw less than a 10 per cent  chance that the economy would tip back into recession. After all, double dip recessions are "extremely rare". Now more people are losing their jobs and Team Obama is caught in the headlights. There is no back-up plan, no Plan B. The Democrats will face the midterms with no stimulus to create new jobs and with an economy that is steadily deteriorating. It’s going to be a massacre and they know it.

Obama and his lieutenants have stopped talking about austerity measures. The plan to dismantle Social Security has been put on hold,( though the Commission headed by the appalling former Senator Alan Simpson grinds on with its mission of destruction.)   No one wants to hear about belt tightening when the future is uncertain and they’re worried about losing their jobs. Obama will have to shift-gears again; switch from promoting the elitist "privatize everything" agenda to his "I feel your pain" routine. He might want to dig up some archived video of B. Clinton chewing his lip and blinking back the tears.

All of the economic data is being revised downwards. The economy is in big trouble and the politicians are just starting to catch on. Stocks fell sharply on Thursday (Dow down 144 points) on news that manufacturing (Philly Fed Index) shrank in August beyond analysts expectations. Nearly every category fell including shipments and new orders. The Dow Jones  is off 10 per cent  since April 23, more than a 1,000 point loss in the last 4 months. Also, Moody’s reported that commercial real estate prices slipped another 4 per cent in June. According to Calculated risk website, "Commercial real estate values are now down 41.3 per cent from the peak in late 2007." It’s a bloodbath.

Bond yields on US Treasuries continue to tumble as investor pessimism grows and increasingly bleak news feeds the fears of another slump. The two-year note has been setting records nearly every day. The benchmark 10-year which peaked at 3.99 per cent in April has since descended into Bernanke’s inferno. It was last seen parachuting to terra firma at 2.61 per cent. If it continues to plunge at this rate, it will be below 2 per cent by year-end. Welcome to Japan.

Try to grasp the significance of bond yields. The business media spins the news and tries to dress up the data with all kinds of happy talk. Bond yields reflect cold hard reality. Investors only plunk their money into low-yielding liquid assets when they’re sure things are going to get worse. Much worse. The rumors of a "bond bubble" is all nonsense. These aren’t leveraged assets; there’s no risk. People accept modest returns because they’re afraid to put their money anywhere else. It’s a referendum on failed monetary policy.  

30-year mortgage rates are pinned to the 10-year which is why rates are lower now than any time in history. Still, housing inventory continues to build. Realtors are finding that they can’t giveaway homes at any price. So much for the American dream.

Policymakers at the Fed, the Treasury, the White House and the Congress now look on as the foundations of the so-called recovery crack before their very eyes. Many of their careers will undoubtedly follow the economy down the drain. As the stimulus runs out, unemployment will rise, deleveraging and debt liquidation will gain momentum, and the economy will succumb to a second vicious contraction. Digging out will not be easy.

MIKE WHITNEY lives in Washington state and can be reached at fergiewhitney@msn.com.