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Richard Wolff: The Next Economic Crisis Is Coming

RICHARD WOLFF:

And here’s another one that people don’t talk about. The big tax cut last December, 2017, gave an awful lot of money to the richest Americans and to big corporations. They had no incentive to plow that into their businesses, because Americans can’t buy any more than they already do. They’re up to their necks in debt and all the rest.

So there’s no need for employers to raise wages to attract workers, they can just pull them slowly out of the desperate population of people who haven’t worked for years and have run out of savings. 

They can’t turn to their friends and relatives anymore, so they come back and accept the jobs that they were once too proud to accept. It’s a real downturn of the quality of life of America, which is why you don’t see the wages going up and why you see the anger and the bitterness, because all of the promises of Obama before, and of Trump now, are not changing that basic situation.

Well at this point I think it really depends on what indexes you’re looking at. The biggest thing that’s kept this economy going in the last few years should make everybody tremble. It’s called debt, let me give you just a couple of examples. Ten years ago, at the height of the crash, the total debt carried by students in the United States was in the neighborhood of $700 billion, an enormous sum.

What is it today? Over twice that, one-and-a-half trillion dollars. The reason part of our economy hasn’t collapsed is that students have taken up an enormous amount of debt that they cannot afford, in order to get degrees which will let them get jobs whose incomes will not allow them to pay back the debts. And forget about getting married, forget about having a family.

Bank of England Admits that Loans Come FIRST … and Deposits FOLLOW

Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.

Video Federal Reserve

How To Be a Crook

Here come the defaults: Credit outlook darkens

Not a single respondent to the International Association of Credit Portfolio Managers survey anticipates default rates will drop. It's the worst quarterly outlook since mid-2009, during the depths of the Great Recession. 

None of this means defaults will spike to the levels experienced in the aftermath of the 2008 financial crisis. Rather, investors are acknowledging that the historically low level of defaults will inevitably climb as economic growth slows.

Rising Credit-Card Use Shows Consumers Are Strapped

Even though evidence is mounting that the U.S. economy may be soon heading into a recession, there are plenty of analysts who say that the surge in credit card borrowing is a sign of strong confidence among households. That's hardly the case. In fact, households' confidence in the future growth of their incomes has been cooling since late last summer, which means borrowers will only reach for what’s in their wallet to compensate for what their paychecks will not cover. 

Add it all up and it’s likely that any rush to "charge it" will be a last gasp as income expectations continue to decline and eventually cross lines with credit card borrowing. The closer we get to recession, the more desperate a sign credit card borrowing is anything but a reflection on strengthening in household finances. Households wouldn’t be reporting that they expect their incomes to rise less if that was the case.

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