Wednesday, February 15, 2012

Today's links

Today's quote: It’s hard to fathom the vast indifference of Western observers to what their militaries are doing in Afghanistan...We lull ourselves into a comforting delusion that we’re waging humanitarian wars, and then wonder why people aren’t more grateful." Kathy Kelly, "Cold, cold heart"

1--Autos Keep Retail Sales Muted, WSJ

Excerpt: U.S. retail sales rose less than expected in January as vehicle purchases plunged, an indication that consumers may remain cautious amid a still shaky economy.

Retail and food services increased 0.4% from December to a seasonally adjusted $401.40 billion, the Commerce Department reported Tuesday. Sales were up 5.8% year over year.

Economists surveyed by Dow Jones Newswires had forecast a 0.9% increase in January retail sales from the previous month.

Auto sales dragged down the overall number, falling 1.1% from the previous month. Still, vehicle sales were up 7.3% from a year ago.

2--German economy pulls away from European pack, Reuters

Excerpt: German analyst and investor sentiment leapt to its highest level in 10 months in February, reinforcing signs that Europe's largest economy is returning to growth as the rest of the euro zone faces a mild recession.

The ZEW think tank's monthly poll of economic sentiment jumped for the third month in a row, to its highest level since April 2011, smashing expectations and sending the euro to a session high against the dollar.

This contrasted starkly with other European data showing output at factories in the euro zone tumbled in December and Portugal's recession deepened in the last quarter of 2011.

A Reuters poll showed the euro zone economy shrinking 0.4 percent in 2012, returning to growth in 2013 with a 1.0 percent expansion.

3--ECB overnight deposits continue to rise, Reuters

Excerpt: With high amounts of excess liquidity in the system, banks
are depositing much of the extra cash back at the ECB.
Overnight deposits at the ECB hit a record high of 528
billion euros at the peak of the ECB's last reserves period and
topped the half a trillion mark again on Tuesday as this week's
climax of the current period approached.

One-week rates, the most heavily influenced by
excess liquidity which currently stands at 489 billion euros
according to Reuters calculations, eased to 0.371 percent from
0.373 percent. Overnight rates bucked the trend, rising
to 0.364 percent from 0.362 percent the previous day.

While it is still not completely clear whether the money
from December's 3-year ECB loan operation is filtering through
to companies and consumers, ECB President Mario Draghi has said
the move had avoided "a major, major credit crunch".

The cash is however having a clear positive impact on both
the money market and euro zone bond markets. Spain, France and
Italy have all enjoyed a blast of positive investor sentiment on
the back of the money.

Money market experts also report that some banks are now
prepared to lend to some of their peers for as long as three
months, a marked improvement on last month when even month-long
loans were hard to come by in the open market.

4--Labor's Declining Share of Total Income, conversable economist

Excerpt: "Economists have identified three long-term factors that can explain why the wage-productivity gap has widened and the share of income accruing to labor has declined. The first is the decrease in the bargaining power of labor, due to changing labor market policies and a decline of the more unionized sectors. Another factor is increased globalization and trade openness, with the resulting migration of relatively more labor-intensive sectors from advanced economies to emerging economies. As a consequence, the sectors remaining in the advanced economies are relatively less labor-intensive, and the average share of labor income is lower. The third factor is technological change connected with improvements in information and communication technologies, which has raised the marginal productivity and return to capital relative to labor."

5--Japan’s 2-Decade Experiment with Fiscal Austerity and 0.7% NGDP Growth, uneasy money

Excerpt: Peter Tasker has an excellent op-ed (“Europe can learn from Japan’s austerity endgame”) in Monday’s Financial Times, pointing out that Japan for the last two decades has been pursuing the kind of fiscal austerity program now being urged on Europe to combat their debt crisis.

When Japan’s bubble economy imploded in the early 1990s, public finances were in surplus and government debt was a mere 20 percent of gross domestic product. Twenty years on, the government is running a yawning deficit and gross public debt as swollen to a sumo-sized 200 percent of GDP.

Fiscal austerity did not begin immediately, but “Japan’s experiment with Keynesian-style public works programmes ended in 1997. The public works programmes did not promote a significant recovery, but in the six years from 1992 to 1997, real GDP at least managed to grow at a feeble 1.3% annual rate. But in the two years after austerity began — public works spending being cut back and the consumption tax raised, real GDP fell by 2.1% (1998) and 0.1% (1999). Despite fiscal austerity, the budgetary situation steadily deteriorated, government outlays rising as percentage of GDP while tax revenues are 5% lower as a percentage of GDP than in 1988 when the consumption tax was introduced.

6--Mortgage Settlement Lets Banks Off the Hook, Again, CEPR

Excerpt: The mortgage settlement agreed to by 49 state attorneys general seems to be yet another stroke of good luck for the banks. Ostensibly, the settlement commits the banks to pay $26 billion to the government and homeowners to compensate for improper conduct in the foreclosure process.

If anyone expects this settlement to have a noticeable effect on the housing market, they will be badly disappointed. Clearly, it will help some number of homeowners keep their homes, but the benefit is likely to limited. There are more than 10 million homeowners underwater by an average of more than $60,000. If the banks actually give $20 billion in debt relief as a result of this settlement, that would be sufficient to give $20,000 to 1 million homeowners. That's helpful, but little more than a drop in the bucket...

It would have been useful if the attorneys general had pushed for a settlement that gave enforceable rights to homeowners facing foreclosure. For example, if they had required servicers to give every foreclosed homeowner the right to stay in their home paying the market rent for five years following a foreclosure, millions of homeowners would have immediately been given housing security they currently lack. And, they could enforce this one themselves rather than relying on the goodwill of the bank or government overseers.

But, that doesn't seem about to happen given the political power of the banks. It looks like their good luck is continuing.

7--Greek Economy contracts 7% in fourth quarter, Athens News

Excerpt: The country's economic slump is headed towards a record annual plunge close to 7 percent in 2011, the fourth consecutive year of a deepening recession.

After an official confirmation by the Hellenic Statistical Authority (Elstat) on Tuesday that GDP dropped 7 percent year-on-year in the fourth quarter of 2011, the economy has shrunk by an average of 6.8 percent.

The latest quarterly contraction followed a slight slowdown of the depression in the preceding quarter, with GDP shrinking 5 percent due to the customary seasonal surge of tourist revenues in the summer.

The decline in the last quarter explains the surge in the jobless rate above 20 percent or 1.036 million unemployed in November.

But the omens for the first half of 2011 were even worse, Elstat said, with economic contractions of 7.3 percent in the second quarter and 8 percent in the first quarter.

The revised GDP figures compare to government estimates of a an output fall of around 5.5 percent last year.

8--US secret armies gear up for global war, WSWS

Excerpt: Among the latest indications is a behind-the-scenes campaign by the chief of the US military's Special Operations Command (SOCOM) for greater autonomy in dispatching elite killer squads to every corner of the globe.

Adm. William McRaven, who heads SOCOM, is, according to the New York Times, seeking “more autonomy to position his forces and their war-fighting equipment where intelligence and global events indicate they are most needed.”

The admiral's proposal, the Times notes, “would also allow the Special Operations forces to expand their presence in regions where they have not operated in large numbers for the past decade, especially in Asia, Africa and Latin America.”

McRaven argues that “[t]hickening the Special Operations deployments in these other regions would allow the United States to be ready to respond more rapidly to a broader range of threats.”

SOCOM includes as its key sub unit the Joint Special Operations Command, or JSOC, which is made up of such outfits as the Navy Seals and the Army's Green Berets, which carry out armed missions abroad. It is one area of the US military that is being spared even the minimal cuts that are being imposed on the Pentagon budget.

Its funding is being increased, a top officer in SOCOM reassured those attending last week's annual conference of the National Defense Industries Association, the premier lobby for America's vast military-industrial complex. “Because we will be continuing to engage in counter-terrorism operations around the globe, we are going to protect the investments in special operations forces,” Lt. Gen. Bradley Heithold, SOCOM's vice commander, told the audience of war profiteers. He confided that Pentagon plans are to increase the command to “70,000 SOF [special operations forces] warriors.”

SOCOM's personnel has doubled since 2001 to its current headcount of 66,000, while its budget has risen from $4.2 billion to $10.5 billion. JSOC's growth has been even more meteoric, going from just 1,800 troops in 1980 to over 25,000 today.

Special operations forces have already been deployed in over 75 countries, ranging from the Dominican Republic and Peru to the Philippines, Yemen, Somalia and central Asia.

According to published reports, the US troop withdrawal from Iraq and the draw-down of tens of thousands of soldiers and Marines from Afghanistan is to be offset by more extensive use of special operations forces. In Iraq, some of these forces will be kept in the country covertly, operating out of uniform, while others will be just across the border in Kuwait. In Afghanistan, a force of some 9,000 special ops troops will remain even after the 2014 formal deadline for a NATO troop withdrawal.

9--The whiff of dictatorship, Nick Beams, WSWS

Excerpt: There is considerable doubt as to whether Greece will ever actually receive the bailout money. Proposals are under discussion for it to be placed in an escrow account to guarantee payments to the banks and other holders of Greek debt, and then to be disbursed to the Greek government only as so-called fiscal and structural “reforms” are carried out over the next three years.

If such measures are imposed, they will only fuel the anger that motivated Sunday’s demonstrations in Athens as well as other Greek cities.

Five years of recession and three years of austerity programs have not only shattered the Greek economy and the living standards of the people, the growth of mass opposition is now leading to the break-up of the existing political structures and parties.

Parliamentary democracy, only reestablished after the fall of the colonels’ regime in 1974, is a fiction. The prime minister, Lucas Papademos, has been elected by no one and the austerity measures were carried in parliament by parties whose popular support has steadily disintegrated as they have carried out the dictates of the “troika”—the European Commission, the European Central Bank and the International Monetary Fund...

The collapse of the main parliamentary parties means that the parties of the so-called “left” are going to play an increasingly critical role as their popular support increases. Whatever their differences, they have one common feature—none of them advances the fight for the establishment of a workers government based on a socialist program. Likewise, all of the three main “left” formations—the Communist Party (KKE), the Coalition of the Radical Left (SYRIZA) and the Democratic Left—oppose the fight for an internationalist perspective based on the unification of workers across Europe in a struggle against the financial oligarchy.

As the parliamentary apparatus disintegrates, two political options, themselves symptomatic of an emerging revolutionary situation, will be exercising the minds of key figures in the ruling elite. One of those is to scrap the April elections and impose some form of extra-parliamentary form of rule, backed by the military.

Another is to consider the formation of a popular front regime, comprising a coalition between the “left” parties and dissident factions from the established bourgeois parties, to disorient the working class and thereby create the conditions for the imposition of a dictatorship.

The Stalinist KKE is already looking to play its part in such a regime. In its statements on the austerity measures, the party called for unilateral cancellation of the debt and the exercise of “peoples power so that the country’s wealth can be utilised to provide prosperity for the people.” The use of such terms—in opposition to the fight for the taking of political power by the working class—is the political preparation for a bourgeois coalition government.

In its report on the events inside parliament, the KKE noted that the intervention of Communist Party members “exerted pressure” and “sharpened the contradictions” in the bourgeois parties. Long political experience has established that whenever Stalinist parties begin talking about contradictions within bourgeois parties and organisations they are preparing to join a popular front regime. The other “left” organisations will either join such a formation or provide it “critical support”.

Sunday’s vote and its aftermath mark a critical turning point. They make clear that there is no end to the austerity program. As soon as one set of demands from the troika is agreed to, more demands are made. This process is incompatible with any sort of ongoing parliamentary regime.

Summing up the political situation, a comment in the English language newspaper Ekathimerini noted there was a head-on clash between the banks and the demands of the population. “The euro zone has essentially set out what kind of government it wants after the snap election. Greek voters won’t necessarily want to comply with these wishes. The respect for democratic principles that the European Union was meant to uphold could face its most severe test yet. Another edifice—the biggest and grandest of them all—could also come tumbling down.”

There is more than a whiff of dictatorship in the air. The working class must prepare for the struggle ahead by advancing its own independent interests in the fight for a workers’ government based on a socialist and internationalist program.

10--Foreclosure deal will drive down prices, Bloomberg

Excerpt: Drive Down Prices

The surge of home seizures may drive down home values, at least for a while, in a fragile market. The number of new foreclosure filings fell 34 percent last year, according to RealtyTrac, building up a backlog of homes that now may flood the market with low-cost properties.

“All of this will result in more foreclosure pain in the short term as some of the foreclosures that should have happened last year instead happen this year,” Daren Blomquist, a RealtyTrac vice president, said in an e-mail today.

About 1 million foreclosures with be completed this year, up 25 percent from 2011, according to the firm.

“I think there’ll be more price weakness, because we’ll see the number of distressed sales pick up,” said Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester, Pennsylvania. “But I think the price declines will be modest. I think the banks themselves are going to be very sensitive to market prices. I don’t think they’re just going to dump property. That wouldn’t be in their best interest

11--Wall Street’s Reputation Still Falling, NY Times

Excerpt: More than three years after the financial crisis, Wall Street banks are still in the doghouse.

In a survey intended to track the reputations of leading companies, only 17 percent of respondents had a positive impression of the financial services industry, according to Harris Interactive, a consulting firm. That is lower than the 22 percent of survey participants who had a favorable opinion of the industry last year. Wall Street ranks third from last in popularity among all industries surveyed, above only tobacco and government....

Bank of America, Goldman Sachs and the American International Group were the lowest scorers in the survey, with R.Q.’s of 49.9, 47.6 and 46.2, respectively. A.I.G. has been a low scorer since 2009, the year after it received an enormous government bailout. But the reputation quotients of Bank of America and Goldman Sachs dipped under 50 for the first time this year. That puts those companies in what Harris Interactive calls the “reputation critical” category, which has in past years included companies like Enron, Halliburton, Fannie Mae, Freddie Mac and WorldCom.

“We’ve seen 12 companies fall below the 50-point line,” Mr. Fronk said. “10 of the 12 are out of business or in some sort of government receivership.”...

Mr. Fronk said, even a multimillion-dollar ad campaign can’t repair a badly damaged corporate reputation all on its own.

“The marketing doesn’t help if the foundational belief around the company and some reputation pillar or platform doesn’t exist,” he said.

12--Repo reform put-off, Reuters

Excerpt: An industry committee formed by the New York Federal Reserve to devise ways to reduce systemic risks in the $1.67 trillion repurchase agreement market is set to announce another delay in revamping the market, a disappointment for regulators.

The task force's final report is expected as early as Wednesday, a source said on Thursday. But the task force failed to show how to apply a cap on credit exposures at clearing banks or fully implement effective risk management procedures, nor did it set a plan for the orderly liquidation of collateral in a time of crisis, said two people familiar with the matter.

Repos are a prime source of bank funding and are backed by assets such as Treasuries.

The task force is, however, expected to set out a new timetable for the main clearing banks in the tri-party repo market - JPMorgan Chase & Co and Bank of New York Mellon Corp - to reduce credit exposures to trading partners, a key cause of the 2008 financial crisis. In tri-party trades JPMorgan or BNY Mellon stand between trades and arrange for the settlement of the loans and manage the collateral behind them....The market has declined by more than $1 trillion from $2.8 trillion before the 2008 crisis

13--The velocity of collateral? Huh?, FT Alphaville

Excerpt: The point has been made before that rising deposits at the ECB do not, (repeat, not) indicate that banks are “hoarding liquidity”.

Here’s Guy Debelle, assistant governor at the Reserve Bank of Australia, on the subject, in a speech made earlier on Tuesday:

In assessing the impact of the ECB’s actions, some commentators focus on the size of banks’ deposits with the ECB as a measure of their effectiveness. If these deposits are rising, the assessment is that the ECB’s actions aren’t working, because the banks are just parking their money at the ECB and not lending it to the real economy. Such an assessment is inaccurate. The size of the banking system’s deposits with the ECB is completely determined by the ECB’s liquidity operations. On the ECB’s balance sheet, the assets it generates by lending to the banking system must also appear on the liabilities side as bank deposits with the ECB. That is, once the ECB has done its liquidity operations, the size of ECB balance sheet is what it is. The amount of deposits provides no real information above and beyond the net amount the ECB has injected into the system, which is already known. It does not tell you anything about what the banks are doing with the funds they have borrowed from the ECB. Or about how many times those funds circulate before ending up back at the ECB.This is true of all central banks, not just the ECB. A similarly misleading statement is often made about the Fed, with bank deposits ‘piling up’ at the Fed supposedly indicating that the Fed’s policy actions are ineffective. Again, the size of banks’ deposits at the Fed is the mirror image of the Fed’s liquidity operations....

The flipside, in a sense, is what is happening to the velocity of collateral:

Graph 2 showed the collapse in money multipliers that has occurred. But it is also interesting to think about the equivalent concept on the other side of the balance sheet, what might be called collateral multipliers. That is, how many times do assets get recycled in the system, particularly in terms of generating funding. Collateral multipliers don’t appear in standard textbooks, but they are an important construct in the world of shadow banking, where repo, collateral hypothecation etc are crucial. Some very interesting work has been done on this in recent times, including by Manmohan Singh and Zoltan Pozsar at the IMF, along with James Aitken.2 Hyun Shin and others have developed a useful framework in which to think about the issue.3 The evidence seems to be that there is a sizeable reduction in the velocity of collateral taking place. Some of this is because of a change in the willingness to lend securities on the part of some asset managers, some is a function of regulatory changes. This has implications for the provision of credit, particularly from the shadow banking sector. It is an area which is certainly worth examining in more detail.

14--Chavez still feels the love in Venezuela slums, Reuters

Excerpt: Even the cats and dogs love Hugo Chavez in the backstreets of La Vega.

At least that is what grateful owners joke as they line up with their pets to take advantage of the latest initiative by the socialist Venezuelan president's network of grassroots organizations: subsidized neutering.

"If the opposition takes over, we lose all these services that Chavez has given us. We go back to zero," said Laura De Pernalete, helping organize the sterilization program in the poor Caracas neighborhood.

"La Vega is 100 percent behind Chavez."

The plethora of "missions" bringing services to Venezuela's slums and impoverished rural areas - from subsidized food to Cuban-staffed health clinics - has underpinned the socialist Chavez's popularity among the poor during 13 years in power.

He is successfully stoking fears that his signature welfare projects, such as the "Barrio Adentro" ("Inside the Slum") healthcare network, will be dismantled should the opposition win the country's presidential election on October 7.

Despite opposition euphoria at selecting a young and streetwise unity candidate - Miranda state governor Henrique Capriles - to fight the election, Chavez's foes know how tough it will be to win over his loyal and passionate support base.

Piling money into more social projects in a pre-election spending spree, Chavez has an edge in polls ahead of the vote.

Yet there is disillusionment among some "Chavistas", as his supporters are known, and surveys show that about a third of Venezuelans remain undecided.

An admirer of Brazil's model of free-market economics with a solid social conscience, Capriles insists he would keep the best of Chavez's welfare programs, and even build on them.

"I want to expand them, and get rid of the corruption and inefficiency that characterizes them," Capriles told Reuters on a recent campaign tour, adding that more than half the Barrio Adentro clinics in his Miranda state were abandoned.

That message, however, has not reached those in the queue for animal neutering in La Vega.

"The opposition wants to stop all this," said Hilda Jimenez, cradling a couple of cats. "Governments did nothing for the poor in the past. Only Chavez has bothered with us."


The opposition paraphernalia plastered all over middle-class Caracas neighborhoods was entirely absent from the tatty streets around her. Instead, the ubiquitous red of Chavez's ruling Socialist Party, and images of "El Comandante", were everywhere.

Down the hill, dozens lined up to shop in a state-run Mercal store, where basic products like milk, chicken, oil, rice, beans and sugar are sold at a quarter of the normal price.

Shop workers scoffed when asked about photos in opposition media showing largely empty Mercal stores.

"As soon as products come in, people buy them immediately because the prices are incredible!" one said. "It's laughable the right-wing tries to present that as something bad."

Despite their visceral hatred of opposition leaders, whom they broadly view as representatives of an old, discredited political elite who never had any interest in Venezuela's poor majority, grassroots Chavez activists are realistic.

They know they have a fight on their hands to stop the energetic Capriles from developing momentum. They plan to highlight his "bourgeois" background in contrast to Chavez's humble upbringing by his grandmother in a rural shack.

They will also seek to target Capriles for his role in a murky episode at the Cuban embassy in 2002 when he was accused of fomenting a riot during the chaos surrounding a short-lived military coup against Chavez. He says he was mediating.

"We can hang his dirty linen out. He's a coupster. He comes from a privileged background. He has never lived like us," said Eriberto Hurtado, who works for one of the thousands of 'communal councils' Chavez has set up around Venezuela.

"Capriles does have strong support though, I'm not doubting that. We have to encourage our people to work hard."


One Caracas district opposition activists rarely dare enter is the militantly pro-Chavez "January 23" slum set on hillsides perched above his Miraflores presidential palace.

Named for the date when a Venezuelan dictator fell, the neighborhood is heavily armed and locals played a major role taking to the streets and demanding Chavez's return after the brief putsch against him in 2002.

Chavez habitually votes at a school there, says he often stares up to the jumble of houses piled on top of each other when meditating in his office, and has a strong emotional connection with residents.

"They don't have a chance here. Come up here? They'd be crazy. I don't even want to talk about that garbage," said Martin Campos, 42, a former soldier and Chavez loyalist.

"We want Chavez until 2021, and then Rosines," he laughed, referring to the president's daughter.

Now working on logistics for Chavez's public events and caravans, Campos runs a busy small business in his spare time cleaning vehicles: "The Socialist Carwash".

Such marketing fits in well in an area where Chavez's figure and words adorn walls next to other Latin American radicals like Ernesto "Che" Guevara, Emiliano Zapata and Fidel Castro.

A rare poster for Capriles remains on one street - but is covered with obscene graffiti and a stencil of an AK-47 assault rifle.

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