Tuesday, August 20, 2013

Today's links

Today's quote:  " The detention of David Miranda is not a “misuse” of the UK Terrorism Act. Rather, it demonstrates the essential purpose of this and similar legislation in the US, Britain and around the world: intimidation and repression of political opposition to the reactionary policies of the ruling class. The “war on terror” is a war on the democratic rights of the people." Joseph Kishore, The detention of David Miranda and the “war on terror”,  World Socialist Web Site


1---Summers; No worse choice for Fed chair, Dean Baker

This effort to rewrite history, turning Summers into a leading proponent of mortgage regulation, is a sign of the White House's increasingly desperate attempts to appease those within the Democratic Party who oppose his appointment. That is a tough job.

The opponents of Summers appointment recognize him for who he is, one of the leading architects of the bubble driven growth that has given the country the worst downturn since the Great Depression. In addition to being a leading proponent of financial deregulation in the 1990s, Summers was also an architect of the failed East Asian bailout that led to the over-valued dollar and massive trade deficits of the last 15 years.

The gap in demand created by these trade deficits was filled by the demand generated by the stock bubble in the 1990s and the housing bubble in the last decade. Summers apparently considered the bubble driven demand to be a healthy growth path. It's possible he still does.

Even after the collapse in 2008, and the subsequent Dodd-Frank reforms, there are few qualitative changes in the financial industry. The big banks are bigger and more profitable than ever. They are also engaging in the same sort of risky and speculative practices as they did in the pre-crisis years.

Summers has to be held largely responsible for this situation also. He was President Obama's top economic adviser at a time when the administration could have dismantled the major banks since they were insolvent. The Obama administration also could have pushed Congress for stronger measures in Dodd-Frank.

Summers had ample opportunity in his prior jobs to demonstrate a commitment to rein in the financial sector. All the evidence shows he pushed in the opposite direction. The Obama administration's effort to portray Summers as the frustrated regulator is cute, but not the sort of thing that deserves to be taken seriously.

2---There Has Been No Improvement in the Hires Rate in Two Years, EPI

Hiring rate has not recovered from historic plunge

3---Abenomics Utter Fail: Japan’s Crazy Exploding Trade Deficit, Testosterone Pit 
The new salvation religion being preached in Japan to a hardened and cynical bunch who’ve lived through one of the worst bubbles and busts in recent history is this: prodigious money-printing by the Bank of Japan would devalue the yen, among other things, causing exports to skyrocket and imports to shrink. The resulting trade surplus would save Japan. But the opposite is happening – and it’s happening fast!

So there was a thimble of good news: exports jumped 12.2% in July from a year ago, the Ministry of Finance reported on Monday. Alas, they were valued in weakened yen. In terms of volume, exports rose only 1.8%. So, Abenomics has accomplished almost nothing in terms of cranking up the real economy via exports.

But it paid a huge price. Imports surged 19.6%, driving the trade deficit to ¥1.024 trillion ($10.5 billion), the thirteenth month in a row of trade deficits, the longest such spell since the 14-month spell in 1979-1980 (to be broken this month). It was almost double the trade deficit of July 2012. And in July 2011, Japan had a surplus of ¥72.5 billion. By that time, the shutdown of Japan’s nuclear reactors had already started. In July 2010, before the reactor shutdowns, Japan had a surplus of ¥784.6 billion. And in July 2007, a surplus of ¥1.25 trillion! That was the old Japan, the export nation.

It was the worst July trade deficit ever, and the third largest overall, after the deficits of ¥1.6 trillion in January 2013 and ¥1.5 trillion in January 2012.

For the first seven months, the trade deficit hit a record of ¥5.8 trillion up 74.5% from the same period in 2012, and up 625% from 2011. During that period in 2010, Japan had a surplus of ¥4.1 trillion!
Japan is venturing into new territory. July was the worst July ever. June was the worst June ever, May the worst May ever.... The deterioration has been steep and unrelenting. There hasn’t even been a statistical squiggle yet. And nothing suggests that there is a turning point near the horizon. Just ominous clouds....

There wasn’t a scintilla of good news on the import side of the ledger. It’s a tabulation of the deindustrialization of Japan. It has been going on for years, but slowly. The earthquake in 2011 pushed Japan Inc., and now Abenomics incentivizes Japan Inc., to move production overseas – and then import the products.
When Japanese companies produce overseas, their revenues and profits from that production are translated into yen on their financial reports. A weaker yen means that sales and profits from overseas have a phenomenal impact on the bottom line. On paper. Some of the most illustrious members of Japan Inc. have seen their profits double – without much actual improvement in their business. That’s where Abenomics is excellent: paper profits for Japan Inc. For the rest, it’s a religion that requires a huge leap of faith.

4---Mr. Market is Having Another Fit Over the Fed’s Taper, naked capitalism

5---America's Growing Income Inequality Problem, economic populist

recent paper The Top 1 Percent in International and Historical Perspective (pdf), authors Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, analyzed the causes of income inequality in the United States.  This study tries to ascertain why the U.S. has turned into the land of the haves and the have nots.  They list four reasons the rich have gotten way richer and the middle class wiped out.
They are:
  1. Tax cuts to the top income brackets
  2. Disparity in Compensation and Bargaining - CEO Pay
  3. Capital gains and Inheritance
  4. Correlation of Earned Income vs. Capital Income
The root cause of it all is the U.S. tax code.  Tax policy starting with Reagan and the Bush tax cuts gave more to the top 1% and less to the bottom
...
Tax cuts may have led managerial energies to be diverted to increasing their remuneration at the expense of enterprise of enterprise growth and employment.
The above quote from the paper is true, as layoffs and thrashing of America's workforce is still a daily occurrence while CEO pay never takes a hit.  In other words, executives take pay right out of the staff's pockets, often through layoffs, only to line their own. ...

Bottom line, the America of post WWII is long gone,  The land and culture the greatest generation fought for and rebuilt post WWII has disintegrated into the dust heap of history.  America is now the land of the Overlords and surfs, of the super-rich and the proletariat, of the executives and their employees.

6----The Guardian: Downing St. involved in 'Snowden materials' destruction order, RT

7---Ten Reasons the U.S. Is No Longer the Land of the Free,  

8---Are mortgage rates impacting construction? A couple of signals from the markets, sober look

9---How Egypt’s Revolutionary Socialists helped pave the way for military repression, wsws (must read)

But the Revolutionary Socialists and their international co-thinkers, the Socialist Workers Party (SWP) in Britain and the International Socialist Organisation (ISO) in the United States, are likewise up to their elbows in blood. An extensive public record shows that they not merely supported, but played a vital part in, a political conspiracy against the Egyptian working class. This conspiracy consisted of the setting up of a front organization, known as Tamarod (Rebellion), by the Egyptian military and sections of the bourgeoisie closest to the former regime of Hosni Mubarak and opposed to those sections allied with the Muslim Brotherhood. Through Tamarod, the RS maintained its own connections to these bourgeois layers, working to ensure their triumph in the coup of July 3....

The RS consistently portrayed Tamarod as the unchallenged leadership of the Egyptian masses. A May 19 statement of the RS, published in the ISO’s newspaper and entitled “Mobilizing the opposition to Morsi”, describes Tamarod as a campaign “launched by a group of revolutionary youth… What is completely new and different about the Rebellion Campaign is that it stems from a popular initiative, opening up space for revolutionary work and experience from below.”
The RS stressed, “We must build this campaign and engage with it where it is effective and open our headquarters to it, so that our mission and our huge responsibility is to be a vehicle for it… Therefore, we announce our full and determined participation in this campaign and call all those struggling for democracy and justice to participate with us and with the entire working class movement in carrying out this battle.”
.....
There have been numerous articles in the New York Times, Al Jazeera, the Washington Post and the Daily Beast showing that Tamarod was controlled by the military and feloul elements close to the former Mubarak regime. It was tasked with insisting that the only way to depose Mursi was to support the armed forces. It took its orders directly from coup leader General Abdel Fatah al-Sisi....

The RS noted, “Among the increasing demands of liberal commentators and leaders, sometimes implied, other times hidden, is the necessity of military intervention to get rid of Brotherhood rule. This means nothing other than a demand for a military coup.”
By endorsing a political coalition that the RS knew to be associated to demands for a military coup, the RS were signaling that they themselves also supported a coup. They went on to hail the “genius of the name and the simplicity” of Tamarod’s campaign, which has ignited “the fuse of that movement on a national level heretofore unseen.”
The RS is forced to acknowledge that those active in Tamarod include the “remnants of the old regime,” acting under the cover of the “liberal bourgeois opposition” who want nothing less than “the complete victory of the counterrevolution as well as bloody retribution against the revolution and all who participated in it.”...

The RS functions as nothing less than a political instrument of the counterrevolution. Beneath a thin veneer of leftist rhetoric, it serves as an apologist for whatever faction of the bourgeoisie is presently in the ascendancy—before moving once more to a position of “opposition

10---The detention of David Miranda and the “war on terror”, wsws

11--India, Brazil should thank Bernanke for their currency woes, sober look

The prospects of higher long-term interest rates resulting from the Fed's taper is forcing investors out of emerging markets - and these two nations are feeling the brunt of this "rotation". To be sure, we have no way of knowing if this would have still occurred if the Fed had not initiated QE3 a year ago. But the severity and the speed of these corrections would suggest that this is one of those unintended consequences of applying and then trying to exit an aggressive monetary stimulus program within highly interconnected capital markets, operating in a global economy. This has not been a part of the FOMC's forecast...
12---Weaker earnings will result in higher corporate default rates; "zombie companies" yet to be hit , sober look

So we have a strong suspicion that the medicine applied to the financial sector has suppressed corporate defaults (the thematic “zombie companies” argument.) Raising the awful possibility that we may be only part-way through a current default event dating all the way back to 2008/9, with the other foot to fall as we all realize that the new normal has to involve some sort of positive interest rate.

13---Further fiscal drag poses risks to the US economy  , sober look
One of the reasons for the slow US recovery has been weaker than usual government spending. The weakness started with fiscal consolidation at the state and local level, driven by sharp declines in tax revenues. The negative impact on the economy is now more pronounced at the federal level. In previous recoveries government expenditures provided cushion to the economy, while in this recovery the net impact of government activity creates a drag. Of course the recent tax increases have not been helpful either.

Source: DB

14--Mortgage refinance boom ending , sober look

15---Treasuries increasingly drive stock market performance, sober look 
 
In recent months the US equity markets have become increasingly sensitive to movements in treasury yields.
BMO Capital Markets: - U.S. equity markets stumbled this week, with the S&P 500 sliding 2.1% and the Dow now skidding almost 4% from the record close set earlier this month. Most of the damage came on Thursday alongside a host of factors including disappointing July industrial production, downbeat corporate news from some Dow heavies and, perversely, a drop in jobless claims to the lowest level since 2007. The latter helped stoke expectations that Fed tapering is fast approaching, and pushed the 10-year Treasury yield above 2.8% for the first time in more than two years. Indeed, while not a big fan of the whole ‘good news is bad news’ refrain, it’s hard to ignore the recent inability of the equity market to absorb upward moves in bond yields.
In fact the correlation between the S&P500 and the 10yr treasury yield hit a new post-recession low (higher yields driving stock prices lower).....
 
if rates continue to rise, higher cost of borrowing will ultimately begin to eat into earnings - and will be immediately reflected in stock prices. At this stage the stock market in the US (and to some extent globally) is taking its lead from treasuries.
 
16--The media's culpability: wsws
 
Figures such as Grunwald would do well to recall the prosecution of Nazi propagandists following the Second World War. “In a conspiracy which depends upon fraud as a means,” the US-led prosecution at the Nuremburg tribunal noted, “the salesmen of the conspiratorial group are quite as essential and culpable as the master planners, even though they may not have contributed substantially to the formulation of all the basic strategy, but rather concentrated on making the execution of this strategy possible.”

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