Friday, November 25, 2011

Weekend links

1--U.S. Workers’ Pay Slide Poses Consumer Risk, Bloomberg

Excerpt: Income gains in the U.S. are slowing and workers’ slice of the earnings pie is shrinking, raising the risk that consumer spending slackens next year.


Gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating growth, rose at an average 2.8 percent annual rate from April through September after climbing 4.3 percent in the previous six months, Commerce Department data on Nov. 22 showed. Employee compensation last quarter accounted for its smallest share since 1955.

In contrast, the portion accruing to corporate profits was the biggest since 1950, showing companies are hoarding cash as concern grows that a European country will default on its debt and that deficit-reduction gridlock in Washington will continue. Without more pay and a pickup in hiring, households may ring in 2012 by making their own budget cuts.

“Businesses are very cautious so they’re not hiring and they’re not distributing their profits to consumers as they had in past expansions,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. “With slow wage and salary growth, consumer spending will be on a sluggish trajectory.”

2--Fed Watch: Europe Can't Move Fast Enough to Halt Crisis, Tim Duy, economist's view

Excerpt: Europe Can't Move Fast Enough to Halt Crisis, by Tim Duy: Today the leaders of Germany, France, and Italy came together, offering a commitment to work toward new fiscal rules in Europe while keeping a leash on the European Central Bank. From the Wall Street Journal:

The leaders of the euro zone's three largest economies pledged Thursday to propose modifications to European Union treaties to further integrate economic policy and crack down on profligate spenders, but they played down suggestions that the European Central Bank have a greater crisis-busting role.

It should be painfully evident at this point that any process toward greater fiscal integration will be a years-long process. Financial markets, however, move at something much closer to the speed of light - as fast as traders can hit the "sell" button. As such, the European political process is grossly incapable of addressing the fiscal crisis.

3--Death By Accounting Identity, Paul Krugman, NY Times

Excerpt: Martin Wolf has a somewhat despairing-sounding column this morning, in effect pleading with the Cameron government to admit that the laws of arithmetic must apply. Good luck with that.

Martin writes,


If the private sector is seeking to run down its debts, it is hard for the government to do so, too, because everybody cannot spend less than their income. That is the “paradox of thrift”. No, it is not a novel idea.

Ah, but for the past two years leaders in the Eurozone, Britain, and the US Republican party have subscribed to the following plan:

1. Slash government spending

2. ??????

3. Prosperity!
For a while ???? was framed in terms of the doctrine of expansionary austerity: slash spending and the confidence fairy would make private-sector spending rise. At this point, however, few still believe in this doctrine. Also, in the euro area it was hard to see how things would work even if the confidence fairy made an appearance; how was that supposed to resolve the large payments imbalances between the core and the periphery?

But even as the intellectual foundations, such as they were, for the austerity plan have been demolished, the plan itself remains unchanged.

4--European banks: Gone ECBing, FT Alphaville

Excerpt: Morgan Stanley is not making recommendations about which European banks to invest in. They are just telling you which ones are even worse than other ones, as they go through the exercise of banks deleveraging assets to the tune of somewhere between €1,500bn and €2,500bn. More…

Morgan Stanley is not making recommendations about which European banks to invest in. They are just telling you which ones are even worse than other ones, as they go through the exercise of banks deleveraging assets to the tune of somewhere between €1,500bn and €2,500bn. From the introduction of their report published this Friday:

We make no changes to our most/least preferred today, although we are very conscious the call here is more relative than absolute until we see a “regime change” in the way Europe is handing sovereign crisis, given our concerns of bank deleveraging, stress in bank funding, stress in bank capital and fiscal consolidation being very negative for economies and thereby bank earnings.

That is to say that the analysts are concerned that the banks can’t fund themselves, they are dumping assets as a result, the debt they have issued is being battered in secondary markets, and fiscal consolidation in Europe isn’t going to improve the outlook either. And by “regime change” we think they mean that policy-makers opting to take a more pro-active, hands-on approach rather than relying on announcements that ultimately amount to nothing.

One of the key symptoms of the turmoil in the banking sector is its increasing reliance on the ECB for funding. A trend which has picked up rather notably for French and Italian banks lately, as the graph below shows: see chart

However, our 2011 funding survey shows that European banks are now 100% funded on average, having frontloaded their issuance in H1. Notably, the Nordics and BNP have prefunded some of 2012.


That’s good news that they’re already funded, but the analysts also note that European banks have €700bn of debt to roll next year. Compare and contrast to the forecast by SocGen that FT Alphaville shared with you earlier this Friday (that covered euro-denominated debt). By way of reminder — SocGen is anticipating less than half of the senior unsecured issuance that was done in 2011 will be done in 2012. Hence it’s hardly any wonder that the ECB is said to be considering offering longer-term financing.

5--The crisis of the euro, WSWS

Excerpt: Many experts no longer believe that the euro can survive in its current form. A poll by Reuters of 20 prominent academics, policymakers and business leaders found that only six believe that the currency union will survive. An additional ten saw a new “core” eurozone with fewer members as a possible alternative.


The collapse of the eurozone would have disastrous economic and social consequences—on this point experts agree. It would plunge the continent into social upheavals and national conflicts similar to those in the first half of last century.

In this context, national tensions in Europe are increasing. France and Italy, supported by Britain and the US, are calling for joint European bonds (euro bonds) and unlimited ECB funds for indebted countries to satisfy the insatiable appetite of the financial markets. Germany has rejected this categorically, insisting that every country must restructure its own budget through hard austerity measures, even if this means—as in the case of Greece—recession and ruin....

There are indications that Merkel might ultimately agree to euro bonds, as she agreed to the EFSF and other measures after initial opposition. But she will ask for a high price. In return, the German government is asking for a tightening of the Stability Pact, enabling Brussels to install a veritable dictatorship over the budgets of individual member states. This would allow the EU to drop the burden of the crisis on the people without bothering about public opinion and democratic procedures.


Euro bonds aim to save the assets of the banks and the funds of the super rich with public money, while the burden of the crisis is shifted on the working class. Nonetheless, the Social Democrats, the Greens and the German Left Party are enthusiastically calling for euro bonds.

Euro bonds would just as little resolve the crisis, as the EFSF and other measures have done....

The European Union has not “unified” Europe, it has only subordinated it to the most powerful financial and industrial corporations; nor has it overcome national antagonisms, which resurge whenever the crisis intensifies. The capitalist class is organically incapable of unifying the continent in the interest of its people, because capitalist private property is insolubly tied to the nation state.


A progressive resolution of the crisis is possible only on the basis of transforming existing property relations. The banks, large corporations and major private fortunes must be expropriated, subjected to democratic control and devoted to serving society as a whole. Social needs must take precedence over the drive for profit.

Such a socialist perspective can be realized in the economically and socially closely-knit continent of Europe only through the close international collaboration of the working class. The aim must be to build the United Socialist States of Europe. The alternative, as in the 1930s, is the balkanization of the continent and a slide into dictatorship and war.

6--Banks Pressing for Foreclosure Settlement Before Investigation, The Big Picture

Excerpt: If ever you need as an illustration why bank bailouts are such a misguided idea, one need look no further than Fraudclosure and RoboSigning. The sunk cost of the bailouts have completely skewed government officials priorities. Hence, enforcement of laws and imposing criminal penalties has become verbotten, as it undercuts the prior monies.

Why do I suspect that the hand of former NY Fed president and current Treasury Secretary Timothy Geithner is behind this?

So far, only Attorneys General in six five states have questioned the rush to settlement before full investigations have been completed. In addition to California, the AGs in Delaware, Massachusetts, Nevada and New York are raising questions about any settlement prior to a full and thorough accounting of exactly how such massive illegality took place at the nations’ largest banking institutions and law firms. Florida’s prior AG was actively investigating fraudclosure, but the new AG, Pam Bondi, has apparently sold her soul to the notorious Lender Processing Service. She fired the Fraudclosure investigators, and I continue to search for evidence she is not corrupt public official, more or less in vain.

Regardless, the banks are hoping to head off further investigations by writing a check in amounts between $18-25 billion dollars.

“Bank representatives and government officials are working on a broad settlement of most state and federal foreclosure-practices investigations that could move forward without the participation of California, long considered a key to any deal, people familiar with the negotiations said.

The terms of the deal remain fluid. Banks have proposed a deal excluding California that would carry a value of $18.5 billion, though the final outcome remains uncertain, people familiar with the discussion said.

Negotiators are continuing to make a push to persuade California to join a settlement valued at $25 billion among federal officials, state attorneys general and the nation’s five largest mortgage servicers: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. The talks center on the banks’ use of “robo-signing,” in which employees approved legal documents without proper review, and other questionable foreclosure practices.

The dollar value would include the value of principal write-downs, interest-rate reductions and other benefits to homeowners as well as cash penalties.

7--New York police beat and arrest students protesting tuition increase, WSWS

Excerpt: Police from the Public Safety Department of the City University of New York (CUNY), assisted by the New York City Police Department (NYPD), arrested 15 students at a public hearing of the CUNY Board of Trustees at Baruch College in Manhattan Monday evening. The students had gathered to oppose a $300 tuition hike and demand that earlier tuition increases be rescinded.

Students who had entered the lobby of Baruch’s Vertical Campus were barred entry to the hearing by police. Some students sat down in protest. With drawn batons, CUNY cops advanced in an attempt to clear students from the lobby.

Police struck male and female students in the face, head and stomach, according to witnesses. Others were pushed to the ground and manhandled by as many as five officers at a time. Video footage of the incident shows police dragging students on the ground.

A Baruch undergraduate told the Daily News, “They started pushing us and beating us. We didn’t want this to be violent. We just wanted our voices to be heard.” One student who was arrested said, “The officers were attacking us, unprovoked.”

In a statement, the university said that the students posed a “public safety hazard.”

8--The threat of dictatorship in Greece, WSWS

Excerpt: The installation by the banks and major imperialist powers of a “national unity” government in Greece that includes members of the fascistic LAOS party, as well as the designation of the right-wing New Democracy party to head the defense ministry, must be taken as a serious warning to the Greek and international working class.

Thirty-eight years after student protests at the Polytechnic in Athens on November 17, 1973, whose bloody suppression ultimately brought down the US-backed junta of the colonels, finance capital is again considering the imposition of military rule or fascist dictatorship to suppress the workers.

Ousted PASOK Prime Minister George Papandreou had mobilized the army to suppress strikes against the austerity measures he was carrying out at the behest of the banks and European institutions. In August 2010, soldiers broke the strike by truckers against the deregulation of their profession. In October of this year, the government placed striking refuse workers under military discipline and forced them back to work....

The inclusion of LAOS in the government is particularly ominous. The move was not strictly required to gain a majority and form a new government. But the new regime’s backers among the international financial elite and the Greek bourgeoisie decided to include LAOS in order to send a political signal.

Fascistic sentiment is being cultivated and made “respectable” again, because xenophobia, nationalism and anti-Semitism are a basis for mobilizing the most reactionary and diseased layers of society against the working class.

Founded in 2000, LAOS became a focal point of the Greek far right, unabashedly appealing to the traditional themes of European fascism. At the founding congress, LAOS leader George Karatzaferis stated: “They say that to get ahead you have to be one of three things: a Jew, a homosexual or a communist. We are none of these.” He called for a LAOS vote to obtain “a parliament without Masons, without homosexuals, without those dependent on Zionism.”

LAOS has repeatedly called for military dictatorship. Its founding statement proposes that political decisions be made by a council including military officers and Church officials. It is an enthusiastic supporter of social cuts and opposed the partial write-down of Greek debt agreed to by the European Union in October.

One of LAOS’s ideologists is the anti-Semite and Holocaust denier Kostas Pleveris, who was their leading candidate in the 2004 elections. His son, Athanasios, became a member of parliament in 2007. In 2006, Kostas Pleveris published the book Jews—The Whole Truth, in which he praises Adolf Hitler and calls for the extermination of the Jews. He depicts Jews as sub-humans who defame the Nazis. He describes himself as a “Nazi, fascist, racist, anti-democrat, anti-Semite.”

Adonis Georgiadis, the new state secretary in the economy ministry, promoted the book on television, highlighting its “wealth of arguments.”

The promotion of such forces is the financial aristocracy’s response to the initial stages of the political reemergence of the working class and the growth of popular protest—starting with the Egyptian revolution, through to the mass demonstrations and strikes in Europe and the Occupy Wall Street movement in the United States. As in Egypt, where the military junta jails, tortures and murders oppositionists, and the US, where the police brutally attack Occupy protesters, the ruling class in Europe is preparing violent repression and police-state rule.

These threats have a great political resonance, given the tragic experiences of the Greek people. In 1967, the CIA and NATO backed the military coup led by George Papadopoulos in a bid to preempt a movement by the working class against capitalist rule throughout Europe. The colonels brutally suppressed every expression of working class opposition. They arrested and tortured tens of thousands of people and built concentration camps on the islands of Gyaros and Leros.

By bringing to power the successors of the Greek junta, the financial aristocracy is threatening the working class not only in Greece, but throughout Europe and the world. “European leaders fear that the same protests and strikes will take place in their own countries,” Dimitris Dimitriadis, a leading European Union consultant, told the Turkish newspaper Hürriyet. This prospect and how to prevent it, he said, was the subject of a November 16 meeting of the European Economic and Social Committee. “This problem is not just related to Greece,” he added.

The reemergence of the threat of dictatorship deals a shattering blow to the claims—made after the fall of the Greek junta and the fascist regimes in Portugal and Spain, and especially after the Stalinist liquidation of the Soviet Union in 1991—that the institutions of the European Union, in alliance with Washington, would oversee the triumph of democratic capitalism.

Instead, global capitalism is mired in crisis, the political system in every Western country is threatened with collapse, and bourgeois democracy is putrefying before the eyes of the world. The decision of international finance capital to respond by promoting LAOS in Greece testifies to the collapse of democratic sentiment in the international bourgeoisie.

In the fight against this threat, Greek workers face not only the ruling class, but also the political treachery of the social democratic parties and their satellites in the Stalinist, Pabloite and other pseudo-left organizations. Inextricably tied to the state and the trade union bureaucracies, which reveal themselves ever more nakedly to be agencies of the ruling class, these forces have mounted no serious struggle against the new government.

The fight against the social attacks of the financial elite comes together with the struggle against the growing assault on democratic rights. The only social force that retains a commitment to democratic rights and is capable of defending them is the working class. What is required is the forging of the unity of the working class across Europe and its independent struggle for political power on the basis of a socialist program.

9--Gigantic Scam, Paul Krugman, NY Times

Excerpt: That’s pretty much what Andrew Haldane, the executive director for financial stability at the Bank of England, is calling a large part of modern finance:

In fact, high pre-crisis returns to banking had a much more mundane explanation. They reflected simply increased risk-taking across the sector. This was not an outward shift in the portfolio possibility set of finance. Instead, it was a traverse up the high-wire of risk and return. This hire-wire act involved, on the asset side, rapid credit expansion, often through the development of poorly understood financial instruments. On the liability side, this ballooning balance sheet was financed using risky leverage, often at short maturities.

In what sense is increased risk-taking by banks a value-added service for the economy at large? In short, it is not.

Basically, Haldane argues that finance fooled investors into believing that it had found a way to earn higher returns, whereas all it was really doing was piling on hidden risk. And he suggests that much if not all of the rise in the share of finance in GDP reflected this deception; in effect, Wall Street and the City were con artists extracting huge rents from an unwary public (and eventually dumping much of the cost, when things went bad, on taxpayers).

10--Galbraith Says U.S. Debt-Deal Flop ‘Best Thing’ to Cut Budget: Tom Keene, Bloomberg

Excerpt: Business ExchangeBuzz up!DiggPrint Email ..Audio Download: James Galbraith Interview .The probable failure of a U.S. congressional committee to reach agreement on at least $1.2 trillion in deficit reductions by this week’s deadline is the “best thing” that could have happened, said economist James K. Galbraith.

Failure for the committee to reach agreement will lead to across-the-board cuts to domestic and defense programs, starting in January 2013. The lack of a deal would deprive President Barack Obama of a vehicle extending a payroll tax cut and insurance benefits for unemployed Americans, which expire at the end of the year. Lack of agreement also means tax cuts for top earners enacted under President George W. Bush may also be allowed to expire at the end of 2012, Galbraith said.

“As things stand, there will be an examination of the defense budget, and a lot of wailing and gnashing of teeth over that,” Galbraith, an economics professor at the University of Texas in Austin, said in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “And the Bush tax cuts expire,” he said. “If you are doing honest budget accounting, that gives you all of the deficit reduction you could possibly want.”

Today is the deadline for the Congressional Budget Office to receive information for analyzing how a proposal would affect the U.S. budget deficit, in advance of the so-called supercommittee’s Nov. 23 target date for reaching a deal. Yesterday, members of both parties took to the airwaves on the Sunday talk shows to blame the other side for the lack of an agreement, though they stopped short of saying the talks had failed....

To spur the economy and hiring, he said the U.S. government should increase the minimum wage. “That would have a very strong stabilizing effect across all of the population of this country that has been hard hit by the financial crisis. It would be a form of reparations for the 99 percent” of the population that “has received nothing but abuse for the past three years.”

11--NATO's Great Victory; Destroying Libya’s Welfare State, DAN KOVALIK, counterpunch

Excerpt: The other day, I was listening to the voice of “liberal” radio, NPR, and was surprised to hear its bizarre, and yet quite candid, report on what it apparently views to be one of the more hideous aspects of the Gadhafi years – a modern welfare state which looked after working people.

Thus, without tongue in cheek, or any note of irony, NPR, in its November 14 report, entitled, “Libya’s Economy Faces New Tests After Gadhafi Era,” explained that the biggest impediment to the new economic era is the Libyan worker who was simply too coddled by Gaddafi.

NPR thus cited a 2007 book on the Libyan economy by authors Otman and Karlberg who called “the Libyan worker under Gadhafi ‘one of the most protected in the world,’” receiving job tenure, government subsidies of around $800 a month for the average Libyan household, and gasoline at a mere 60 cents a gallon. NPR, citing the same book, explained that workers now freed from such a tyrannical world by NATO bombs, have been left with a “’subsidy mentality’” and a “’job-for-life outlook which has ill-prepared Libyans for the more aggressive and cutthroat world of competition.’”

However, lucky for them, Libya’s new acting finance and oil chief, Ali Tarhouni, is resolved to turn this situation around by disciplining Libya’s workers through “smaller government and a larger and freer private sector.” NPR describes that, Tarhouni, being the realist that he is, “has no illusions that it will be an easy transition.” The report thus quotes Tarhouni who states that, “[t]he challenge here is that this is a welfare state,” with Libyan workers expecting too much from their government. I’m sure Tarhouni, with Western support, will show these workers a thing a two.

Of course, had NPR gone further, they could have also explained that, according to the statistics of the United Nations Development Programme, Libya, at the time of the NATO invasion, had the highest human development indicators (which measure levels of health, education and income) in all of Africa, with a life expectancy of 74.5; undernourishment of the population at under 5%; and adult literacy at over 88%. Libya was in fact ranked 53 in the world out of 169 comparable countries, ranking, for example, above Turkey, (post-Soviet) Russia, Brazil and Costa Rica in terms of the human development indicators.

For NATO, its corporate allies, and its media mouthpieces, such prosperity for workers simply will not do. We live in a world where austerity for the workers is the order of the day – for those in Libya, Greece, Italy, Spain, Great Britain and the U.S. as well. And those who stand in the way of such austerity measures, whether they be a nationalist government in Libya, Communists in Greece or Occupiers in the U.S., must be dealt with accordingly – by violent reaction.

Thankfully, once in a while, we have news sources such as NPR which will, albeit quite unwittingly and clumsily, tell us that this is indeed what our military and police actions are all about. You just have to be reading and listening between the lines to find out.

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