Thursday, January 13, 2011

Today's Links

1--2011 Starts With A Bang: $4.2 Billion In OUTFLOWS From Domestic Equity Funds,zero hedge

Excerpt: After ICI just revised the last two data points of 2010 which were originally inflows, even if modest, to one outflow and one minimal inflow, more importantly it has disclosed the first flow of funds in 2011. And as we predicted looking at last week's inflows in taxable bond funds, the year starts with an equity outflow, confirming that the retail lemmings are really not as stupid as the Fed and the Primary Dealers believe they are. And what an outflow: at $4.2 billion, this was the largest one week outflow since early October! And yes, bond inflows have resumed as we speculated, even as the scariest indication that things are really not well persists: namely that outflows from that next domino to drop, municipal bond funds, accelerate. And when munis go, it is either a wipe out or QE3. Our money is on the latter.


2--Interpreting the employment numbers, Econbrowser

There might seem to be some conflicting signals from Friday's employment report from the Bureau of Labor Statistics. But I see a uniform message in the various numbers-- the economic recovery remains disappointingly weak....

The household survey is also the basis for the BLS estimate of the unemployment rate, which fell from 9.8% in November to 9.4% in December. We haven't seen that big a 1-month drop in the unemployment rate since 1998. So maybe the establishment numbers were erring on the pessimistic side?...

Unfortunately, the household numbers look much less rosy when you look at them a little more closely. For one thing, the impressive December gain comes right after an estimated loss according to the household survey of 175,000 jobs in November and a whopping loss of 294,000 in October. How can the household survey be signaling a falling unemployment rate over the last 3 months if its measure of the number of people working has actually gone down?...

It's that increasing tendency to drop out of the labor force that accounts for an improving unemployment rate in the face of quite weak job growth.....And, given the circumstances in which we're seeing people dropping out of the labor force, it's hard to greet the decrease in the unemployment rate as good news; see Justin Lahart and Calculated Risk for more discussion. The household survey thus in my mind confirms the inference from the establishment survey: this is still a much weaker job market than we want and expect for this phase in the recovery.

3--The point of QE2 is to devalue the dollar, CEPR

Excerpt: The NYT reported that conservatives criticize the Fed's new round of quantitative easing (QE2) for, "printing money, financing the federal deficit and devaluing the dollar." The devaluing of the dollar is in fact one of the main goals of QE2, not an unfortunate outcome as the piece later notes. One of the ways in which QE2 would boost the economy is by making U.S. goods more competitive internationally by lowering the value of the dollar.

4--World economy faces deepening turmoil, WSWS

Excerpt: For much of the post-war period the US functioned as the anchor of the world capitalist economy. Today it is one of the main sources of destabilisation as it seeks to overcome its mounting economic problems at the expense of its rivals.

The US Federal Reserve’s policy of so-called “quantitative easing,” which sees it pumping billions of dollars into the global financial system—increasing the availability of cheap finance and pushing down the value of the US dollar—is sending shock waves through the world economy.

One of the immediate consequences has been renewed speculation in food and other basic commodities, such as oil. This week, the UN’s Food and Agriculture Organization issued a warning that food prices had now surpassed the levels reached in the price hikes of 2007-2008.

Faced with “hot money” inflows sparked by quantitative easing, a number of countries have sought to impose new financial controls. Brazil has just announced new banking regulations to try to curb the inflow of finance, while Chilean authorities have intervened in money markets to try to hold down the value of the peso.

Pointing to the deepening divisions in the world economy, Nobel laureate economist Joseph Stiglitz noted that the coordinated policy response of the major powers to the economic crisis in 2009 was now a “faint memory”.

“Worse,” he continued, “America’s quantitative easing is now viewed as an update of the policies that marked the Great Depression. The world is waking up to the way that exchange rates can be used in self-promotion at the expense of others—discouraging imports and enhancing exports.… Such beggar-thy-neighbour policies didn’t work in the 1930s, because countries responded in kind. Today the same will happen.”

The eruption of currency wars threatens to fracture the world market in the same way that tariff barriers in the 1930s divided the world into a series of hostile economic blocs, leading to the eruption of war by the end of the decade.

5--Oil's Rise Is a Sticky Situation for Recovery, Kelly Evans, Wall Street Journal

Excerpt: It is Jan. 12 and the price of oil is roughly $90 a barrel. The year is 2011—or is it 2008?...Households are hardly in a better position to absorb that cost today than they were three years ago, before the worst of the recession hit.

That is an important point: With gasoline already at $3 a gallon it is more a threat to economic growth than it is a sign of inflation.

"Unless you have wage inflation in tandem, it means consumers have less to spend on other things," says J.P. Morgan economist Michael Feroli.

Unfortunately, U.S. wages have barely kept pace with inflation since the 1970s, and with unemployment at 9.4%, that is unlikely to change now....Rising prices are so far mostly limited to food and energy and haven't spread to other consumer goods.

Companies are itching to make that happen, of course, to offset their own rising bills. But they aren't having much success. Perhaps they should adopt Henry Ford's approach: Pay workers more so they can afford to buy more products.

After all, wage indexation has basically vanished in the U.S. That's a big reason why oil-price shocks don't cause inflation today the way they did in the '70s and '80s.

Instead, they act as a drag on consumer spending. The same month that gasoline prices peaked above $4 a gallon in July 2008, personal consumption expenditures dropped by 0.6%—the largest one-month decline since September 2001....A 2008-style shock isn't a certainty, but the upward trend is clear.

6--Census: 48 Million Americans Now in Poverty, Democracy Now

Excerpt: Newly released census data indicates that the number of Americans living in poverty is millions higher than previously known. Under a new revised census formula, one in six Americans, or 48 million people, lived in poverty last year. The census shows a growing number of people over the age of 65 who are struggling in poverty due to rising medical costs.

7--Survey: 61 Percent Support Higher Taxes on the Rich, Democracy Now

Excerpt: A new survey from CBS News’ 60 Minutes shows a vast majority of Americans support raising taxes on the wealthy or cutting military spending to help balance the national budget. In the survey, 61 percent of respondents said they preferred new taxes on the rich, 20 percent backed cuts to military spending, four percent said they would cut Medicare, and just three percent said they would cut Social Security.

8--US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages, Robert Lenzner, Forbes

Excerpt: The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.

They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.

All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.

Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.

The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.

9--Haiti and the Aid Racket, Ashley Smith, Counterpunch

Excerpt: While some NGOs like Partners in Health have done and are doing amazing work to provide services for quake victims, overall, the catastrophe in Haiti revealed the worst aspects of the U.S. government and the NGO aid industry.

As many analysts have noted, the U.S. in fact used its "relief" operation to disguise a military occupation of Haiti, intended to prevent a flood of refugees reaching the U.S., impose even greater sweatshop development on Haiti, and signal to the rest of Latin America, the Caribbean and the world's most powerful governments that U.S. aims to reassert its power in the region....

The big NGOs, which are getting the bulk of the money, see the crisis as an enormous opportunity to raise funds and their profile. Thus, instead of a centralized and logical relief effort, something only a sovereign state could provide, the NGOs are competing with one another, literally branding areas they serve with their logos....

As David Harvey argues in his book A Short History of Neoliberalism:

The rise of advocacy groups and NGOs has...accompanied the neoliberal turn and increased spectacularly since 1980 or so. The NGOs have in many instances stepped into the vacuum in social provision left by the withdrawal of the state from such activities. This amounts to privatization by NGO. In some instances, this has helped accelerate further state withdrawal from social provision. NGOs thereby function as "Trojan horses for neoliberal globalization."

The NGOs are, in fact, businesses in their own right. They sport well-paid bureaucrats that raise money off of the disastrous impact of neoliberalism around the world. They are not accountable to the local populations they supposedly serve, but instead to the international donors that fund them--most often, corporate-backed formations like George Soros's Open Society Institute and capitalist governments.

Moreover, given that NGOs can pay local leaders more than either the government or social movements, they often recruit people who would traditionally lead leftist movements. As Mike Davis in The Planet of Slums:

Third World NGOs have proven brilliant at co-opting local leadership as well as hegemonizing the social space traditionally occupied by the Left. Even if there are some celebrated exceptions--such as the militant NGOs so instrumental in creating the World Social Forums--the broad impact of the NGO/"civil society revolution"...has been to bureaucratize and deradicalize urban social movements.

Davis argues that NGOs are, in fact, a form of "soft imperialism." They play a role very similar to the one that missionary religious institutions played in the earlier history of empire. They provide moral cover--a civilizing mission of helping the hapless heathens--for the powers that are plundering the society. And just as religious institutions justified imperial war, many NGOs, abandoning their traditional standpoint of neutrality in conflicts, have become advocates of military intervention....

Thus, as noted Haitian academic Robert Fatton argues, "The emasculation of the state is no accident...It is partly the consequence of the neoliberal regime implanted in the country by the major international financial institutions. By advocating the withdrawal of the state from its social and regulating obligations, and by promoting the supremacy of the market, this regime has contributed to an economic, political and social disaster."....

Unsurprisingly, as Hallward argues, "the bulk of USAID money that goes to Haiti and to other countries in the region is explicitly designed to pursue interests--the promotion of a secure investment climate, the nurturing of links with local business elites, the preservation of a docile and low-wage labor force, and so on."

Haitians now commonly refer to their own country as the "Republic of NGOs." But that is a misnomer, since Haitians have no democratic control over the NGOs. In reality, Haiti has been ruled by an American NGO Raj....

The NGOs themselves are in the business of poverty, not its eradication, and they have proliferated in lockstep with the collapse in the Haitian standard of living. This has led many Haitians to rightly see them as profiting off their crisis.

As Sove Lavi told Schuller, the NGOs "take the illness [of AIDS] and turn it into a business. They let people die...Thanks to this illness, many people have become gran neg [bigwigs], many people have become rich. Many people drive fancy cars, fancy motorcycles. Many people are achte [making a lot of] money on the backs of people who are living with the illness. Many people living with the illness, we continue to die."

These NGOs have left in their wake a litany of projects that, far from improving the condition of impoverished Haitians, has in fact worsened it....

In another example, Schwartz tells the story of NGO-sponsored orphanages that degenerated into a cover for trafficking in children.

NGOs like World Vision, Compassion International and Christian Aid Missions collectively sponsor tens of thousands of children in orphanages. On the surface, this sounds like a benevolent plan. But as Schwartz shows, the middle-class operators of the orphanages took the money from the NGOs and ran a scam.

In some cases, these operators housed not actual orphans, but children of the local elite. In other cases, they offered money to impoverished Haitians for their children, with the promise that they would be cared for, educated and given a chance at a better life. The bulk of actual orphans--impoverished street kids--didn't get places. The orphanages were filled up with middle-class kids or children bought from their parents--that is, fake orphans.

Schwartz writes that he "had zero doubt that orphanages for Haitians and for many Americans who were helping them procure funds were businesses." He calls it "false charity. I believe it is tantamount to robbing from impoverished children themselves. The money is theirs, and they are not, in the overwhelming majority of cases I encountered, getting it."

Even worse, the most cynical of the people trading in children sell the poorest of the children into slavery or the sex trade. Often, these children are marketed abroad. UNICEF reports a conservative estimate that each year, 2,000 Haitian kids are sold into the Dominican Republic alone....

Schwartz conclusions are absolutely correct:

The world's largest multinational charities--CARE, CRS, World Vision and ADRA--executed the political will of institutions, governments and lobbyists that had identified Haiti's comparative advantage as low wages--i.e. poverty--and in doing so, these charitable organization dedicated to helping the poorest of the poor wound up working to make the people of Haiti even poorer.

WHILE THE U.S. used the NGOs to help impose neoliberalism in Haiti, they also manipulated them to build political opposition to any reform movement. The U.S. stepped up funding for the NGO racket in the run-up to its second coup against Jean-Bertrand Aristide in 2004. At the very same time that it enforced an embargo on Aristide's government for alleged electoral manipulations, it escalated the funding of NGOs that were in opposition to Aristide.

As Hallward writes, they made "use of tried-and-tested tactics of democracy promotion. In Haiti as elsewhere, the main vehicles for delivering the policy were USAID, the International Foundation for Electoral Systems, and the International Republican Institute. Altogether, from 1994 to 2002, Washington would contribute some $70 million--a staggering sum by Haitian standards--to 'train' an appropriate political opposition to Aristide."

Many, if not most, of the NGOs that ended up organized in the elite opposition's political front, the Group of 184, and that supported the coup were on the U.S. payroll.

Such NGO collaboration with the coup completes a vicious circle--the NGOs aided and abetted the "plan of death"; exacerbated through failure, mismanagement and corruption the impact of neoliberalism on Haiti; and then supported the coup against the democratically elected government.

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