Saturday, July 13, 2013

Today's links

1--Snowden echoes Edith Piaf; "No Regrets", Guardian

"The government and intelligence services of the United States of America have attempted to make an example of me, a warning to all others who might speak out as I have," Snowden said. "I have been made stateless and hounded for my act of political expression...

Snowden praised Venezuela, as well as Russia, Bolivia, Nicaragua and Ecuador for "being the first to stand against human rights violations carried out by the powerful rather than the powerless" and for "refusing to compromise their principles in the face of intimidation...

 Snowden argued that his leaks were serving, rather than harming, the American people. "He said he doesn't want to bring harm to the United States and sees himself as a law-abiding citizen and a patriot," Nikonov said.

2--In case you forgot: Edith Piaf, "No Regrets", you tube

3---Mubarakism Without Mubarak---The Struggle for Egypt, counterpunch

While in power, Mursi and his government continued Mubarak’s policies of contracting the public sector and social spending in a continuing war against the poor and downtrodden of Egypt, who are the majority of the population, and pushed forth neoliberal economic policies that favored the rich and powerful, including an IMF deal (which was never finalized for no fault of Mursi’s), which would increase the already existing austerity measures against the poor. Indeed, he did nothing to change the existing labor and tax laws that favor the rich and oppress workers, middle class employees, and the poor. Mursi neither prosecuted army generals for crimes of which they stood accused (he rather bestowed on them major state honors and awards and made those whom he retired into advisors to the President), nor tried the Mubarakist thieving bourgeoisie in the courts for its pillage of the country for three and a half decades, let alone the security apparatus that continued to repress Egyptians under his rule.

On the contrary, as a president who came out of the rightist and neoliberal wing of the MB (compared to the more centrist ‘Abd al-Mun’im Abu al-Futuh who also ran for the presidency and lost), he was interested in an alliance between the Islamist neoliberal bourgeoisie, whose most visible member is Khayrat al-Shatir (who was barred from running for the presidency by the Mubarakist courts), and the Mubarakist bourgeoisie. Unlike al-Shatir who is the son of a rich merchant and who made his own fortune in Egypt, many among the Islamist rich, though not all, made their money in the Gulf. They were mostly kept out of a share in the pillaging of Egypt, restricted to the close businessmen friends of Mubarak, now wanted a place at the table to partake of the ongoing pillage of the country. While Mursi won the favor of the military with the US vouching for his good behavior, at least until last week, hard as he tried to convince the Mubarakist bourgeoisie to allow the Islamists to partake of pillaging Egypt, the Mubarakist bourgeoisie would not budge.....

The Mursi government seemed surprisingly pliant and friendly to Western interests, including towards Israel, whose president Shimon Peres was addressed by Mursi as “my dear friend” in an official presidential letter. Contrary to expectations of a burgeoning friendship with Hamas, under Mursi’s government, the Gaza border in Rafah was closed more times than under Mubarak, security coordination with Israel became more intimate than under Mubarak, and to make matters worse, Mursi, with the Egyptian army and the help of the Americans, destroyed the majority of the underground tunnels between Gaza and Sinai which the Palestinians had dug out to smuggle in food and goods during their interminable siege since 2005 and which Mubarak had not dared demolish. Mursi even went further by mediating between Israel and Hamas during the latest Israeli attack on Gaza, vouching that he would guarantee that Hamas would not launch rockets against Israel but not the other way around. It is true that Mursi refused to meet with Israeli leaders but even Mubarak had refused to visit Israel for years before his ouster and had recalled his ambassador in protest against Israeli policies. One of Mursi’s more major acts before his recent ouster was not the closure of the Israeli embassy, as friends and enemies of the Islamists threatened he would do, but closed down instead the Syrian embassy in support of the ongoing rightwing Islamist insurrection in that country.

4---Stocks high but no growth, Trimtabs

Stock prices are near record highs despite the fact that the U.S. economy is barely growing. So it is highly unlikely stock prices will keep going up without the tail wind of massive money printing. Which means this stock market bubble will pop when the Fed announces that it will start slowing the new money game -...

Adjusting for the changes in tax rates, what is really going on is that since March, year over year wage and salary growth before inflation has grown between 2.8 percent and 3.7 percent. That growth rate is down about a percentage point this year from 2011 and 2012 primarily because of this year’s boost in employment taxes. In other words, the underlying U.S. economy has been growing very slowly with no real change up or down over the past three years.....

Despite such a weak U.S. and even weaker global economy, would you believe that the market value of all global stocks is $54.5 trillion today? That’s not far from the $61 trillion market cap peak record reached in October 2007. From that $61 trillion high the value of global stocks plunged by more than half to $25 trillion by early March 2009.

In other words, despite a slow or no-growth global economy, the value of all stocks are up by $30 trillion over the past three years. Even more interesting is that the market cap peaked at $58 trillion on May 21, the day before Fed Chairman Bernanke first said the Fed will slow its money printing sooner rather than later.

What this means is that stocks globally have still not recovered from the May 22 Taper announcement. Right now, Fed officials are saying that no tapering will happen unless the U.S. economy improves. Maybe, but remember, the Fed controls the game and can change the rules for any reason. Perhaps Mr. Bernanke wants to leave office at the end of this year with an exit strategy in place regardless of whether the economy is rising.

Look, obviously for as long as the Fed keeps creating $4 billion of new money each day, $85 billion a month and $1 trillion a year, stock prices should keep rising. But when the market becomes convinced that the Fed will taper at some specific point in time, and that might be sooner than later, stocks will start to sell off.

Globally, portfolio managers feel very smart because stock prices have more than doubled since 2009. To justify current prices many PMs say U.S. stocks are not overpriced because the trailing 12-month price earnings ratio is only 15 times. What those PMs do not seem to want to know is that a 15 p/e is reasonable when incomes are growing by over 4% adjusted for inflation, such as between 1983 and 2007. During slow growth times the average p/e has been under 10, such as between 1969 and 1983.

If Tapering becomes the name of the game, I would expect US stock prices to trade down about one third to 10 times earnings, or back to around 10,000 on the DJIA and1100 on the S&P 500.

5----US in inescapable liquidity trap, Lance Roberts

"A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels."...

 In September of 2008 the excess reserves of major banks was just $9 billion.  After the Lehman failure excess reserves have now skyrocketed to $2.07 trillion.  That is roughly an increase of $400 billion in excess reserves annually.....

The real culprits behind the declines in economic growth rates, interest rates and inflation is more directly attributable to increases in productivity, globalization, outsourcing and leverage (debt service erodes economic activity)....

In turn this has pushed monetary velocity to the lowest levels on record as the economy continues to weaken as deflationary pressures persist, the demand for credit remains weak and consumption remains constrained by stagnant wage growth....

Should we have an expectation that the same monetary policies employed by Japan will have a different outcome in the U.S?  More importantly, this is no longer a domestic question - but rather a global one since every major central bank is now engaged in a coordinated infusion of liquidity.  The problem is that despite the inflation of asset prices, and suppression of interest rates, on a global scale there is scant evidence that the massive infusions are doing anything other that fueling the next asset bubbles in real estate and financial markets.  The Federal Reserve is currently betting on a "one trick pony" which is that by increasing the "wealth effect" it will ultimately lead to a return of consumer confidence and a fostering of economic growth?  Currently, there is little real evidence of success.

6--Uhm, about that credit report...-JPM Excess Deposits Rise To New Record; Loans At Pre-Lehman Levels, zero hedge

deposits held by JPM rose modestly to a new all time high of $1,202,950 million, or $1.2 trillion. This compares to $970 billion in Q3 2008 at the time Lehman failed. What about the flip side of this key bank liability: loans. As of June 30, 2013, total JPM loans declined from $729 billion to $726 billion, the lowest since September 2012. But more disturbing, this number is $35 billion less than the $761 billion at September 2008. It means that JPM's excess deposits have now risen to a new all time high of $477 billion, up from $474 billion last quarter.

Why is this a problem? Two reasons.

First, as most recall, the way the JPM London Whale office was funded, was by using excess deposits over loans to provide the dry powder and collateral which which Bruno Iksil's office tried to corner the IG9 and high yield markets. ...

while deposits have increased by $233 billion since Lehman, loans have dropped by $36 billion since September 2008! And that's why there is no wholesale (soaring) inflation: the cash deposits are locked into boosting the S&P, instead of growing the economy and broader credit money aggregates.
We understand that JPM generates better returns for its shareholders by simply gambling in the market and using deposits to buy stocks, but at some point this strategy will fail and lead to huge losses

7---David Stockman: Financial Engineering As The ATM Of The Prosperous Classes , testosterone pit

8--Fukushima Spiking All of a Sudden, op ed news

9---Neocons and Democracy: Egypt as a Case Study, Jim Lobe

They were also behind the creation of the National Endowment for Democracy (NED), a quasi-governmental organization headed by one of Kirkpatrick’s deputies, Carl Gershman, and designed to provide the kind of political and technical support to sympathetic groups abroad that the CIA used to supply covertly. (Indeed, the NED has not been wholly transparent, and some of its beneficiaries have been involved in highly undemocratic practices, such as agitating for military coups against democratically elected leftist governments, most recently in Haiti and Venezuela. I was at a dinner a few years ago when, in answer to my question about how he perceived neoconservative support for democracies, Zbigniew Brzezinski quipped that when neoconservatives talk about democratization, they really mean destabilization.) In a 2004 op-ed published in Beirut’s Daily Star, I wrote about how neoconservatives have used democracy promotion over the past quarter century as a means to rally public and Congressional support behind specific (often pro-Israel, in their minds at least) policies and strategic objectives, such as the invasion of Iraq.

10--The deeply divided Fed, Fed Watch

Bernanke is pulling the strings. Someone brokered a truce at the FOMC meeting that allowed Federal Reserve Chairman Ben Bernanke to lay out the path to ending asset purchases. That someone must have been Bernanke, indicating that he wanted to introduce the idea that asset purchases would most likely soon be curtailed. This suggests that Bernanke is pro-tapering.

3.) Bernanke tipped his hand big time. Bernanke claimed in his press conference that his comments represented the views of the FOMC. But as I noted earlier this week, the minutes make no reference to his 7% unemployment trigger for ending asset purchases. So where did that number come from? Must have been Bernanke revealing his own preference. This was confirmed today by Bullard

11--Political economy: -Central banks use crisis to implement painful neoliberal reforms, econospeak

  Exactly what sort of pressure is envisioned that would override democratic preferences and force governments to cut the safety net, promote greater inequality and take other unpopular acts?  The answer is the bond market.  Governments that defend redistribution and restrictions on the market are expected to be punished by higher interest rates on their debt.  This empowers the creditors, wealthy individuals and institutions, to impose their presumed preferences on democratic majorities.  The great sin of aggressive bond market intervention by central banks to support sovereign debt is that it blunts this instrument, supplying publicly created liquidity when private wealth is skeptical....

I agree with Noah Smith’s hypothesis that the true motivation, or at least one of them, is to not let a crisis go to waste, and to use economic pain as leverage to achieve other goals—a smaller state, less regulation, etc.  This is a strategy that dare not speak its name.  Proponents don’t say “let’s hold governments and populations hostage through austerity in order to force them to pursue a neoliberal agenda”; that would not go over well.  But this is not to accuse them of deceit

12---The two arguments why the Zero Lower Bound matters, mainly macro
I think it is important to distinguish between two arguments why the Zero Lower Bound (ZLB) for nominal interest rates matters. I will label these the first and second, and economists and statisticians will soon [1] see why these labels have some significance. The first argument is debatable, but the second is I believe very difficult to argue against.

The first argument why the ZLB matters is that unconventional monetary policy either does not work, or hits limits on what it can do, and these constraints bite. In short, monetary policy at the ZLB cannot fully achieve monetary policy goals. The second argument about why the ZLB matters is that the impact of monetary policy becomes more uncertain. Under the second argument, it is possible for some particular dose of unconventional monetary policy to duplicate what interest rate policy might otherwise achieve, but there is more uncertainty about what that appropriate dose is. The impact of any unconventional monetary policy action is therefore more unpredictable than the impact of conventional policy.

Much of the discussion of unconventional monetary policy involves the first argument. An important feature of Quantitative Easing (QE) is that its size is potentially unbounded - the central bank can create as many reserves as it likes. So if the impact of each unit of QE on the economy is constant, even if this constant is small, if we knew what that constant was we just scale up the programme so it has the desired effect. However, it seems to be much more likely that the policy involves diminishing returns, but to be honest I have no idea whether that means there are limits to what the policy can currently do. There are also some who worry that unconventional monetary policy has dangerous side effects on financial stability if it becomes too large. As I said, the first argument is debatable.

What seems clear to me is that we know much less about the impact of QE, or other kinds of unconventional monetary policy, than we do about conventional monetary policy. This almost follows by definition: we have well established models for conventional policy, and much more data to check these models against. What data we have also suggests the impact of unconventional monetary policy is more uncertain. (This is the conclusion drawn by John Williams, who has done a good deal of work on their impact, and I have never heard anyone argue against this view.) That is why I think it is very difficult to deny that the impact of monetary policy at the ZLB is much more uncertain compared to monetary policy outside the ZLB. [2]
This paper examines the implications of uncertainty about the effects of monetary policy for optimal
monetary policy with an application to the current situation. Using a stylized macroeconomic
model, I derive optimal policies under uncertainty for both conventional and unconventional monetary
policies. According to an estimated version of this model, the U.S. economy is currently
suffering from a large and persistent adverse demand shock. Optimal monetary policy absent uncertainty
would quickly restore real GDP close to its potential level and allow the inflation rate to
rise temporarily above the longer-run target. By contrast, the optimal policy under uncertainty is
more muted in its response. As a result, output and inflation return to target levels only gradually.
This analysis highlights three important insights for monetary policy under uncertainty. First, even
in the presence of considerable uncertainty about the effects of monetary policy, the optimal policy
nevertheless responds strongly to shocks: uncertainty does not imply inaction. Second, one cannot
simply look at point forecasts and judge whether policy is optimal. Indeed, once one recognizes
uncertainty, some moderation in monetary policy may well be optimal. Third, in the context of
multiple policy instruments, the optimal strategy is to rely on the instrument associated with the
least uncertainty and use alternative, more uncertain instruments only when the least uncertain
instrument is employed to its fullest extent possible.
15--Bernanke: The nuclear option; counterpunch
Bernanke laid out the details in a speech he gave in May 2003 to the Japan Society of Monetary Economics, in which he outlined the policies Japan should enact to beat deflation. Here’s what he said:
Bernanke again:
 “… Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt–so that the tax cut is in effect financed by money creation. Moreover, assume that the Bank of Japan has made a commitment, by announcing a price-level target, to reflate the economy, so that much or all of the increase in the money stock is viewed as permanent.

Under this plan, the BOJ’s balance sheet is protected by the bond conversion program, and the government’s concerns about its outstanding stock of debt are mitigated because increases in its debt are purchased by the BOJ rather than sold to the private sector. Moreover, consumers and businesses should be willing to spend rather than save the bulk of their tax cut: They have extra cash on hand, but–because the BOJ purchased government debt in the amount of the tax cut–no current or future debt service burden has been created to imply increased future taxes. Essentially, monetary and fiscal policies together have increased the nominal wealth of the household sector, which will increase nominal spending and hence prices."

16---Goods Disinflation Reappears, but Shouldn’t Worry Fed, WSJ

17--Japan's turn to the right, wsws

Abe has quickly taken steps to bolster the Japanese military. Earlier this year, he announced the first increase in defence spending in more than a decade. He is moving to modify the constitution to allow the “self-defence forces” to become a “normal military.” On the ideological front, he has challenged established historical facts on Japan’s wartime atrocities, such as the forcing of women into sex slavery....

In response to the Great Depression of the 1930s, Japan’s militarist regime turned to turn to wars of conquest in Asia, and ruthlessly crushed opposition from the working class and rural poor at home. The Abe government is also seeking to undermine democratic rights as it prepares to suppress popular resistance to its right-wing, pro-business agenda.

The LDP’s proposed draft constitution has deleted formal guarantees of basic democratic rights, emphasising instead Japan’s “traditional values”—i.e., the duty of citizens to obey the state. Moreover, the prime minister would have the power to impose a “state of emergency” in the event of war, as well as “social disturbance due to internal strife.”

The entire political establishment in Japan is lining up with Abe’s preparations for war. In the course of last year’s elections, all the major parties called for the defence of the Senkaku/Diaoyu islands as part of Japan’s territory. Former DPJ Prime Minister Yukio Hatoyama has recently been denounced as “a traitor” for even suggesting that Japan should recognise that there is a dispute with China over the islands.

Among ordinary working people, there is deeply-felt hostility to the revival of Japanese militarism and war, But this finds no expression through any of the official political channels. Japan’s alliance with the US has repeatedly provoked major protests, most recently against the decision to send troops to support the illegal US-led occupation of Iraq.

18--European Union’s Nabucco pipeline project aborted, wsws

19---Home-Loan Applications for New Houses Fall 15%, MBA Says, Bloomberg

20---Fixed Rates Surge on Strong Employment Report, DS News

21---Rate on 30-year mortgage hits 2-year high, USA Today

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