Tuesday, October 4, 2011

Today's links

1--Suicide of a Superpower, Patrick J. Buchanan, American Conservative

Excerpt: October 3, 2011" American Conservative" -- This generation of Americans has been witness to one of the most stunning declines of a great power in the history of the world.

In 2000, the United States ran a surplus. In 2009, it ran a deficit of $1.4 trillion—10 percent of the economy. The 2010 deficit was almost equal, and the 2011 deficit is projected even higher. The national debt is surging to 100 percent of GDP, portending an eventual run on the dollar, a default, or Weimar inflation. The greatest creditor nation in history is now the world’s greatest debtor.

In the first decade of what was to be the Second American Century, a net of zero new jobs were created. Average households were earning less in real dollars at the end of the decade than at the beginning. The net worth of the American family, in stocks, bonds, savings, home values, receded 4 percent.

Fifty-thousand plants and factories shut down. As a source of jobs, manufacturing fell below healthcare and education in 2001, below retail sales in 2002, below local government in 2006, below leisure and hospitality, i.e., restaurants and bars, in 2008—all for the first time.
In April 2010, three of every four Americans, 74 percent, said the country is weaker than a decade ago, and 57 percent said life in America will be worse for the next generation than it is today....

2--Europe Must Fight Back Against US-UK Speculative Attacks, Global Research

Excerpt: No Recapitalization of Banks to Mask Derivatives Losses — No amount of recapitalization could ever hope to cancel out the derivatives which are hiding inside these banks......

No Leveraging of the EFSF — If the European economies have too much debt, say the Anglo-Americans, the answer is obviously to accumulate more debt by using the existing European Financial Stability Fund as collateral for wider borrowing. But this foolish suggestion would leave the EFSF wide-open to the attacks by credit rating agencies who act as thinly veiled proxies for Wall Street and the City of London...

No IMF — The meddling and bungling economists of the International Monetary Fund have left a trail of tears across the globe, and have never been able to point to a single story of successful economic development as a result of their prescriptions. The IMF is the bearer of the absurd and discredited Washington Consensus in economic policy based on deregulation, privatization, union busting, the destruction of the social safety net, the liquidation of the state sector, the systematic reduction of wages and benefits, and a generally barbaric race to the bottom. By 2008, there was a revolt against these draconian recipes, but they have now been imposed on Greece, Portugal, and Ireland. Europe must be the Europe of the peoples, and not the Europe of the banks and cartels. The failed neoliberal and monetarist policies of the IMF must have no place in European development....

What Europe Must Do

Liquidate Zombie Banks; End Too Big to Fail — About a dozen of the top European money center banks are clearly insolvent, and are being kept alive because of political considerations. These Euro-zombies are benefiting from the continental version of Too Big to Fail. These banks do not and cannot provide commercial lending for new plant and equipment that could create new productive jobs. Instead, they trade in toxic derivatives, increasing the size of the world derivatives bubble. They also add to the crushing burdens on the productive economy by speculating in commodities and energy futures, all of which makes the depression worse. They also gouge their own customers with outrageous fees. These banks serve no constructive social or economic purpose. They must be subjected to bankruptcy proceedings, and their derivatives wiped out....

The ECB must be taken permanently out of the control of secret cliques of unelected and unaccountable bankers and subjected to the democratic control of representative political institutions. The only conceivable way to provide democratic legitimacy for the ECB is to have the size of the European money supply, the interest rates that will be applied, and the approved categories of lending be determined via public laws debated and approved by the European Parliament in the full glare of public opinion....

€1 Trillion For Infrastructure – These €1 trillion tranches of ECB lending should be used for the systematic modernization and expansion of the European network of superhighways, fast rail and maglev rail, modern energy production and delivery, water systems and canals, housing, hospitals, schools and other educational institutions , libraries, public buildings, and other necessary public works. The goal is to accomplish a permanent increase in the European stock of capital goods, while quickly upgrading the productivity of European labor.

3--We Are The 99 Per Cent, Mark Ruffalo, "The Guardian"

Excerpt: I have spent the last two days at the Occupy Wall Street gathering. It was a beautiful display of peaceful action: so much kindness and gentleness in the camp, so much belief in our world and democracy. And so many different kinds of people all looking for a chance at the dream that America had promised them...

When people critique this movement and say spurious things about the protesters' clothes or their jobs or the general way they look, they are showing how shallow we have become as a nation. They forget that these people have taken time out of their lives to stand up for values that are purely American and in the interest of our democracy. They forget that these people are encamped in an urban park, where they are not allowed to have tents or other normal camping gear. They are living far outside their comfort zone to protect and celebrate liberty, equality and the rule of law.

It is a thing of beauty to see so many people in love with the ideal of democracy, so alive with its promise, so committed to its continuity in the face of crony capitalism and corporate rule. That should be celebrated. It should be respected and admired.

Their message is very clear and simple: get money out of the political process; strive for equality in taxation and equal rights for all regardless of race, gender, social status, sexual preference or age. We must stop poisoning our food, air and water for corporate greed. The people on Wall Street and in the banking industrial complex that destroyed our economy must be investigated and brought to justice under the law for what they have done by stealing people's homes and savings...

It's time to check ourselves, to see if we still have that small part that believes in the values that America promises. Do we still have a shred of our decency intact in the face of debasement? If you do, then now is the time to give that forgotten part a voice. That is what this movement is ultimately about: giving voice to decency and fairness.

I invite anyone and all to participate in this people's movement to regain your dignity and what you have worked for in this capitalist society. Each of us is of great value to the whole. Do not forget your greatness. Even when the world around you is telling you you are nothing. You have a voice. You want a better life for your children and the people you love. You live in a democracy. You belong, and you deserve a world that is fair and equal. You have a right to take your place and be heard.

4--Special Report: A "great haircut" to kick-start growth, Reuters

Excerpt: More than three years after the financial crisis struck, the economy remains stuck in a consumer debt trap. It's a situation that could take years to correct itself. That's why some economists are calling for a radical step: massive debt relief.

Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates - essentially, a "great haircut" to jumpstart the economy.

What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.

"We've put this off for too long," said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. "We need debt relief and jobs and until we get these two things, I think recovery is impossible."

The bailout of the nation's banks, a nearly trillion dollar stimulus package and an array of programs by the Federal Reserve to keep interest rates near zero may have stopped the economy from falling into the abyss. But none of those measures have fixed the underlying problem of too much consumer debt....

But households are still carrying a staggering burden of debt.

As of June 30, roughly 1.6 million homeowners in the U.S. were either delinquent on mortgages or in some stage of the foreclosure process, according to CoreLogic. And the real estate data and analytics company reports that 10.9 million, or 22.5 percent, of homeowners are underwater on their mortgage -- meaning the value of their homes has fallen so much it is now below the value of their original loan. CoreLogic said the figure, which peaked at 11.3 million in the fourth quarter of 2009, has declined slightly not because home prices are appreciating but because a growing number of mortgages are entering foreclosure.

The nation's banks, meanwhile, still have more than $700 billion in home equity loans and other so-called second lien debt outstanding on those U.S. homes, according to SNL Financial.

Debts owed by American consumers account for almost half of the nearly $9 trillion in worldwide bonds backed by pools of mortgages, car loans, credit card debt and student loans, which were sold to hedge funds, insurers and pension funds and endowments.

And that doesn't include the $4.1 trillion in mortgage debt sold by government-sponsored finance firms Fannie Mae and Freddie Mac.

5--Declining Wages Hurt Consumer Spending, Economic Recovery, Wall Street cheat sheet

Excerpt: Incomes fell in August for the third time in five months, with personal income dropping for the first time in two years, according to a Commerce Department report last week. Meanwhile, household income fell to $49,445 last year, according to the Census Bureau, its lowest in over a decade, while the poverty rate climbed to 15.1%, a 17-year high.

In terms of wages and employment, the economic recovery is seemingly non-existent. Salary and benefit growth “has been going nowhere,” said Mark Zandi, chief economist at Moody’s Analytics. “One of the key reasons the recovery has stalled is that real incomes have fallen.” Inflation-adjusted weekly earnings have declined for six consecutive months, falling 1.8% in August from the year earlier....

If Congress fails to extend payroll-tax cuts and unemployment benefits set to expire at the end of the year, it will only further cut into Americans’ purchases. “It’s hard to see where consumers are going to get a lot of wherewithal to sustain strong spending,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “It’s certainly a concern that, rather than sluggish consumption growth, we see flat or declining consumption.”

The decline in incomes will cause “continued pressure on home prices and on the stock market,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. Corporate sales may be hurt, people will begin withdrawing from retirement plans and using 401k loans

6--To Cure the Economy, Joseph E. Stiglitz, Project Syndicate

Excerpt: As the economic slump that began in 2007 persists, the question on everyone’s minds is obvious: Why? Unless we have a better understanding of the causes of the crisis, we can’t implement an effective recovery strategy. And, so far, we have neither.

We were told that this was a financial crisis, so governments on both sides of the Atlantic focused on the banks. Stimulus programs were sold as being a temporary palliative, needed to bridge the gap until the financial sector recovered and private lending resumed. But, while bank profitability and bonuses have returned, lending has not recovered, despite record-low long- and short-term interest rates.

The banks claim that lending remains constrained by a shortage of creditworthy borrowers, owing to the sick economy. And key data indicate that they are at least partly right. After all, large enterprises are sitting on a few trillion dollars in cash, so money is not what is holding them back from investing and hiring. Some, perhaps many, small businesses are, however, in a very different position; strapped for funds, they can’t grow, and many are being forced to contract....

But the economy was very sick before the crisis; the housing bubble merely papered over its weaknesses. Without bubble-supported consumption, there would have been a massive shortfall in aggregate demand. Instead, the personal saving rate plunged to 1%, and the bottom 80% of Americans were spending, every year, roughly 110% of their income. Even if the financial sector were fully repaired, and even if these profligate Americans hadn’t learned a lesson about the importance of saving, their consumption would be limited to 100% of their income. So anyone who talks about the consumer “coming back” – even after deleveraging – is living in a fantasy world.

Fixing the financial sector was necessary for economic recovery, but far from sufficient. To understand what needs to be done, we have to understand the economy’s problems before the crisis hit....

...while bankers have regained their bonuses, workers are seeing their wages eroded and their hours diminished, further widening the income gap. ....The prescription for what ails the global economy follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves.

7--Wall Street hits 13-month low on Europe woes, Reuters

Excerpt: Stocks slumped in heavy volume to a 13-month low on Monday as investors dumped bank shares on fears that Greece's worsening financial crisis could cause a large European lender to fail.

Investors pegged losses to the sharp fall in Franco-Belgian financial group Dexia, which fell 10 percent after a Moody's warning about its liquidity due to concerns about exposure to Greece.

Markets have feared European officials will be unable to prevent Greece's fiscal crisis from turning into a global banking crisis. Greece said it will miss its deficit targets this year and next, which could limit the country's ability to receive more aid.

"Most investors fear that markets in Europe are going to run well ahead of politicians that are not going to be able to get any kind of reasonable solution," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

U.S. banks have become a target for speculators. Morgan Stanley closed at its lowest since December 2008, and the cost to insure its debt has jumped as other banks hedge counterparty exposures and traders bet on the situation worsening.

The recession that wiped 12 years of gains off the S&P 500 was caused in part by a credit crisis.

"We are going to have a disorderly default in Greece and there could be another banking crisis in Europe as they are undercapitalized and loaded with (sovereign) debt," De Gan said.

Morgan Stanley has been the most volatile bank in recent weeks, with the cost to insure its debt rising to November 2008 levels, according to Markit data.

Morgan Stanley shares fell 7.6 percent to $12.47 and the S&P financial sector was down 4.5 percent.

The market's focus on Morgan Stanley stems from a perception about their reliance on short-term funding, said Harbor Advisory's De Gan. "They rely on the credit markets and that was the downfall of Lehman and other institutions three years ago," he said.

The Dow Jones industrial average dropped 258.08 points, or 2.36 percent, to 10,655.30. The S&P 500 fell 32.19 points, or 2.85 percent, to 1,099.23. The Nasdaq Composite lost 79.57 points, or 3.29 percent, to 2,335.83.

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