Post-Pandemic Economic Scenarios-Interview #3

14 June 2020 — Jack Rasmus

Following is the 3rd excerpt from my late April interview with Konrad Stachnio of Poland for his forthcoming volume on the current pandemic crisis from a European perspective. In this concluding segment, Konrad asks my views on subjects like the next global depression, the future of digital money, financialization, my response to corporate ideologists’ interpretations of the crisis, and on left intellectuals’ views like Slavoj Zizek.


(What’s A Depression?)

INTERVIEWER: Would you agree with the statement of Gerald Celente, who said that we are going into not a recession, but a Great Depression? This scenario like before the Second World War – we have trade wars, we have currency wars, we have Great Depression, and then you know the end of the story. What do you think about this?

DR. RASMUS: Back in 2010, in my first book on the crisis in 2010 called Epic Recession: Prelude to the Global Depression, I said you’ve got to distinguish between what’s called “normal” recessions and great recessions (or what I called epic recessions). I didn’t like the word “great” because that term is being thrown around without a definition. Economists like Paul Krugman were saying “Oh, great recession. It’s worse than normal but not as bad as the 1930s.” That’s just economic analysis by adverbs. It doesn’t tell you anything.

So in my book in 2010, I distinguished between what’s a normal recession, what’s a great or epic recession, and what’s a depression, both quantitatively and qualitatively. I pick up that theme again in my latest book, The Scourge of Neoliberalism, published just a couple months ago.

What’s the difference? Normal recessions are recessions that aren’t associated with a financial crash. They’re just a short contraction of the real economy. You get overproduction in one area, or maybe you have a policy error like occurred in 1981 where Reagan purposely slowed down the economy to make the average household pay for the cost push inflation from oil and the embargos. Those are normal recessions.

2008 was not normal in that you had a banking crash. A banking crash will make the real economy contract faster and deeper, and then that faster and deeper contraction will feed back onto financial instability and exacerbate that in turn still further. So you got the financial and the real economy both following each other down deeper, which means it takes longer to recover from it. That’s a great recession, where the banking crash is stopped at one event. Subsequent banking or financial crashes are prevented. The banks are quickly bailed out and the real economy and jobs slowly, very slowly recover over the course of years.

Now, take the Great Depression in the 1930s, is still different from a normal recession and a great recession. What causes a depression is a series of financial banking crashes that come one after the other in a relatively time frame. That drives the economy down and ratchet deeper, deeper, every time you have a financial crash. And that’s what happened in the 1930s.

The Great Depression of the 1930s, as I pointed out, was not just one precipitous falling off a cliff. It was a series of stabilizations and contractions that went deeper and deeper as the banking system got worse and worse, and series of banking crashes in turn fed back on the real economy that got worse and worse, and defaults in the real economy caused even further crashes on the banking side, and you have a mutual, negative interaction between financial cycles and real cycles.

Mainstream economists don’t understand financial cycles, and they don’t understand how financial cycles interact in a mutually amplifying way with real contraction in the real economy and vice versa. In my 2016 book, Systemic Fragility in a Global Economy, I presented in the final chapter a theoretical proposal and hypothesis of how those two cycles interact with each other and exacerbate each other in a great recession downturn and even worse in a great depression.

So whether we’re going to get into a great depression after 2020 will depend on whether we have a bona fide banking financial system crash that occurs later this year or after, and whether they can stop that banking-financial crash. The Fed and other central banks are already putting out trillions of dollars to prevent that now. To pre-emptively bail out the banks and the financial system. But if those trillions don’t work and we have a crash anyway, then what the hell are they going to do? Then they’ll really be at the ‘end of their ropes’.

Can they stop it? It’s a 50-50 proposition and we’ll see if we have subsequent rolling financial banking crashes. Then you will have your great depression.

(The Future of Digital Money)

INTERVIEWER: Not a good scenario at all. What about digital money? Do you think that we’re going to have a scenario where the central banks will introduce some sort of digital money instead of paper money?

DR. RASMUS: Yes, they will. Central banks will introduce digital currency – if anything to hold off the private sector from creating a money supply by creating their own private digital currency. The central banks and the governments will not allow cryptocurrencies to supplant the regular monetary system. They’ll prevent it. They’ve already taken steps to do that in terms of regulation and taxation and so forth.

But they’ll allow cryptocurrencies, bitcoins and everything, as a kind of speculative play, kind of like gold futures or valuable paintings or something like that. It’s a pure speculative play. They’ll allow that. And the banks will play a role in collecting fees on all that. But they won’t allow it to be a true digital currency out of the control of the state capitalist government.

So central banks eventually will introduce their own digital currencies, and it will be very slowly and very controlled. But being electronic and digital, whether they can really control that in the long term remains to be seen. I’m not so sure.

INTERVIEWER: That’s an interesting statement. But what about Chinese? They’re introducing their own currency, like crypto. What do you think about this?

DR. RASMUS: All the major monetary countries are going to be dabbling and experimenting in this. But the Chinese and the Russians have another motive here, and that is to get out from under the dollar and the U.S. dominated international payment system. It’s that payment system and the dollar that are the crux of the U.S. economic empire. The U.S. global economic empire cannot function unless the dollar is the dominant reserve trading currency and unless the U.S. banking system is able to control it all and is at the center of international payments system.

Because it’s the international payment system that is dominated and controlled by the U.S., it allows the U.S. to see who’s violating the sanctions. That’s why this move by Europe to establish INSTEX, it’s called, to trade with Iran, is so important. If that takes off and establishes itself, then of course the Russians and the Chinese may join it. Or the Chinese and the Russians may establish their own INSTEX-like payment system and bring other emerging markets into it.

This is all a fundamental challenge to the U.S. global empire, and the U.S. throwing sanctions at everybody has just accelerated the whole process of moving toward an alternative. It’s one of the most damaging aspects of Trump’s trade and sanctions policies.

(On Financialization & Future of Neoliberalism)

INTERVIEWER: Do you think that we are facing the last days of globalism and the neoliberal system right now?

DR. RASMUS: In my January 2020 book, The Scourge of Neoliberalism, U.S. Economic Policy from Reagan to Trump. One of my conclusions was that what you see with Trump is neoliberalism on steroids, neoliberalism 2.0.

I define what neoliberalism is in terms of policies and in terms of structural change in Capitalism; it’s, a very materialist kind of explanation. I think there’s a lot of ideological fluffy notions floating around about what neoliberalism is, and only partial explanations. Austerity is not just neoliberalism. Neither is deregulation and privatization. Neoliberalism is a lot more.

Neoliberalism is those sets of policies in four distinct areas – fiscal policy, monetary policy, industrial policy, external policy, trade, currency exchange rates and so forth – that was developed in the late ’70s, early ’80s, by Britain and the United States as a response to the crisis of the 1970s. Neoliberalism is what the U.S. instituted to buy itself decades more of economic dominance, economic hegemony. It was the American-Anglo solution to do that, to extend hegemony. USA as the dominant partner; UK as the junior partner.

And neoliberalism has always meant globalization and financialization. Without the financialization of the U.S. and the global economy, you would not have globalization in other ways because that financialization had to occur in order to allow the globalization in other dimensions. So the two are both sides of one coin. I define financialization quite different than most others have, whether left economists and others. I’m not going to go into that definition or review that book. I went into it in depth in my ‘Systemic Fragility in the Global Economy’ book published in 2016.

But basically, one of my conclusions was neoliberalism grew and expanded very aggressively in the U.S., through Bill Clinton and George W. Bush, but it hit a wall in the 2008-09 crisis. Obama could not put it back together again fully because of the crisis. Those neoliberal policies were undermined by the natural evolution and change of capitalism itself from the late 1970s through the present. Neoliberalism served to help restructure capitalism in the ’80s and ’90s very successfully in response to the 1970s crisis decade, but then these same neoliberal policies created after 1980 have become a drag on the further development of capitalism in the 21st century. Neoliberalism no longer works, so capitalists will replace it with some other policy mix that better suits its needs in the 2020s decade and beyond.

So the contraction between neoliberal policies and capitalist structure began to emerge, and with 2008-09, the contradictions revealed themselves more fully. Trump represents a futile attempt to restore neoliberalism, in a new virulent, aggressive form. The trade wars, for example, or what he’s doing on the external policy side. The massive tax cuts on the fiscal side. The massive deficits created by war and tax cuts. Going after the industrial side with more privatizations, deregulations and destroying unions and so forth.

But I predict Trump won’t succeed. I predicted in one of my chapters at the close of my 2020 book on Neoliberalism that changes that are coming within the structure of capitalism and at the material base of capitalism are undermining neoliberalism and that it will fail early in the 2020s decade. It may be failing now right before our very eyes in the wake of this virus thing.

The question then becomes, what’s going to replace it? That will either be, in my view, a move to a more progressive kind of economic capitalism, more like the New Deal of the ’30s, or it may evolve into a more Neofascist corporatist kind of economy in the next decade. It could go either way. But it’s not going to be neoliberalism as we’ve known it from Reagan through Trump. It’s going to be something else, either much worse or better. That’s a political solution question.

(On Slavoj Zizek & Left Intellectuals)

INTERVIEWER: Let’s hope for the better. I think we’re getting to the end because we have 48 minutes right now. The last question: would you agree that normality will never return? Let’s put it very simply. This is a statement from Slovenian philosopher Slavoj Žižek, that normality will never return. Do you think that we’re going to face the collapse of the European Union soon? What do you think about that? For example, we were talking about the new economic system. Right now, for example, Žižek and other people are proposing – I mean it – they’re proposing some sort of communism for the economy.

DR. RASMUS: You’ve got three questions there, right?

INTERVIEWER: Sorry for that. I tried to compress everything. [laughs]

DR. RASMUS: All right. Normality. What’s normal? Nothing is normal under capitalism. Capitalism is always dramatically changing. You would say in 1980-82, “Are we going back to the ’60s and ’70s? That’s what was normal.” No. Neoliberalism was not the normality of the preceding decades.

So the decade that’s coming and after is not going to be normal in the sense of returning to neoliberal economy and political institutions that were a reflection of that. No, it’s going to be a new normal, whatever that is. Because capitalism is always changing, and it’s changing at a more rapid pace here in the 21st century than ever before.

In the Neoliberalism book just published a few months ago, I point out the evolution in labor relations and markets and in the character of exploitation that’s coming with artificial intelligence. It’s going to destroy 30% of the occupations, and already we have a third or more of the people working in contingent jobs, part-time, temp jobs, gig work where they can hardly survive. Well, it’s going to get even worse with AI.

All these simple decision-making jobs in services and manufacturing are going to go away, and it’s only going to be highly professional technical jobs that are going to be able to maintain a standard of living. Professional jobs and jobs that are oriented towards making profits and generating greater productivity for capital. The rest are going to be even worse off than they are today. So the new normal is going to be very difficult next decade, you might say.

As far as Žižek and communes and so forth are concerned, you’ve got to beware of intellectuals. Left intellectuals not just those on the right. They create all these fantasies off the top of their head because they aren’t rooted in the reality of average working people. He has a lot of good ideas; I’ve read some of them, ideology and so forth, but some of the stuff they come up with is really crackpot.

INTERVIEWER: Yeah, I must admit. [laughs]

DR. RASMUS: It comes off the top of their head. It doesn’t come from the real experience of real people. But you can’t blame them because all they’ve got in their ivory towers is the top of their head.

(On Tim Draper & Corporate Ideology)

INTERVIEWER: Can I just ask you something? Because this is quite important. I was talking with this guy from Silicon Valley, Tim Draper, billionaire from U.S., and I asked him, “What about these poor people who cannot adapt to this new system, this AI system where there is no job for them?” He said, “Very simple. They have to just adjust themselves to the new economic system and that’s all. Like always, like before. Like in the ’30s, like all the time in history.”

DR. RASMUS: A very callous response.

INTERVIEWER: But maybe it is that simple. I just don’t know.

DR. RASMUS: Well, I’m not so sure the young people and millennials, Gen Zers coming behind the millennials, are going to accept that. Already, a majority of the United States say they’re socialist. They don’t know what that means, but to them it means “not the above.” They’re becoming very anti-capitalist.

People like Draper and others better watch out with that kind of an attitude because people just aren’t going to accept that kind of an attitude. In other words, “I’ve got to lower my standard of living? Instead of working a part-time job at minimum wage, I’ve got to work three part-time jobs, or I’ve got to live with five other people instead of one other person in an apartment, or I can’t afford to have a family or afford to have kids?”

Young people see their whole life before them, and that scenario is not going to be acceptable to them. At some point they’re going to really be upset, and we’re getting closer to that point. I’m not saying it’s around the corner, but that’s unacceptable to say “I’m condemned to a life of a kind of indentureship, of low pay, no benefits, whatever.”

Others are saying people have to have some kind of universal basic income. Well, something like that might happen here when people start rebelling. I don’t know. It’s going to take something like that, because the capitalists simply aren’t going to give it to you. Whether that happens remains to be seen.

But I think that’s a very arrogant, elitist, egotist answer, condemning millions and millions of people to a very unsatisfactory life. I don’t think they’re going to accept it. I think he’s playing with fire with that. But that’s how they feel. In the U.S. here, an expression of that is what’s going on now with “Maybe we should accept more deaths. It would get the economy going. That’s more important.” In other words, “My revenues are more important than Grandma and Grandpa and your Uncle Ralph dying. That’s more important.” That’s a capitalist attitude. It’s them and us.

The rest of us aren’t really considered full human beings by these people. You’ve got to understand how they think. I worked in their ranks for 19 years. I know how they think. Before that, for 13 years, I was a union organizer and a local president and a strike leader and union contract negotiator. So I’ve seen from both class sides how people think. Their different sets of values, about life and other people. Capitalists think different, very different from the rest of us. Their life values are also fundamentally different. Draper is a good example of the way these guys think. If you can’t make money for them, then you’re less human than them in their eyes. They don’t say it publicly or direct. They’re too clever for that. But that’s really how they think and feel, privately and off the record.

(On Financial Imperialism & Greece)


DR. RASMUS: And what about Europe and the European Union? Well, that’s a 50/50 proposition. I thought it was going to unravel in the last 2011-13 crisis there, and I saw this new internal imperialism emerging where Northern Europe was exploiting the hell out of the Southern Periphery and a new kind of extraction of value was going on at the state to state level.

Greece, of course, was the most extreme expression of that, and I wrote this book, Looting Greece: The New Financial Imperialism Emerges, published in 2016. They stabilized that by beating down the Greek opposition in the Syriza party and making it capitulate. I thought it would result in Greece and others splitting from the Eurozone monetary union and currency, and I still think that’s a possibility. Unless the leadership of the European Union realizes it’s going to have to spend more of its wealth in maintaining stability and raising the standard of living on the Southern Periphery as well a split is inevitable from it. Maybe Italy instead of Greece. If it doesn’t adjust its policies, and it has to do that fiscally, then the Eurozone is doomed eventually. A union based on a currency and single monetary policy cannot prevail. But a greater emphasis on fiscal policy and sharing the wealth in the Eurozone will never happen. German banks won’t allow it to happen. Then that’s the future of Europe, one way or the other. We’ll see.

[End of recording and interview]

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