Thursday, October 10, 2013

Today's Links

1---IMF report points to deepening recessionary trends in global economy, wsws

growth in the US is forecast to be only 1.9 percent in 2013, a downward revision of 0.2 percent on previous IMF estimates, and then rising to 2.7 percent in 2014. This is less than the 3 percent rate generally considered necessary to keep unemployment from rising.
The most significant feature of the IMF’s analysis is the marked slowdown in growth predictions for so-called emerging markets, which between them have accounted for three quarters of total growth in the world economy over the past five years....

And as the IMF report acknowledged, as “global growth remains in low gear,” a “plausible downside scenario” could include the following events: continued weak investment in Europe; a further decline in growth in emerging markets and China; the failure of the monetary policies of the Abe government to provide a long-term boost to the Japanese economy; and a tightening of financial conditions in the United States as the Federal Reserve Board begins to cut back on its asset purchases.

The possible global impact of a decision by the US Fed to “taper” its purchases of Treasury bonds was the subject of an IMF policy paper issued on Monday. Under the program of “quantitative easing” financial speculators have used cheap funds from the US to invest in emerging markets, to secure a higher rate of return. But “tapering” will lift interest rates in the US and could lead to an exit of these funds. “A repricing of risk could induce a run by investors holding speculative positions, especially if these are highly leveraged using short-term funding,” the paper warned.

This, in turn, could lead to major capital outflows and a financial crisis which would rapidly spread internationally....

The report underscores the fact that the ruling elites and their array of financial experts, central bankers and their myriad of economic advisers have no economic solution to the ongoing breakdown of the profit system.
They have only one program, implemented with increasing ruthlessness across the world: an ever-deepening assault on jobs and social conditions—in short a social counter-revolution.
The international working class must respond with its own strategy—the fight for international socialism, starting with the expropriation of the banks and major corporations in order to begin the reconstruction of the world economy to meet human need.

2--Yellen to the Fed, wsws

Obama stressed his absolute commitment to collaborate with congressional Republicans to slash Social Security and Medicare in his Tuesday press conference, saying, “I will sit down and work with anyone of any party, not only to talk about the budget; I’ll talk about ways to improve the health care system … I’ll talk about ways that we can shrink our long-term deficits.” To make it perfectly clear, he added, “If anybody doubts my sincerity about that, I’ve put forward proposals in my budget to reform entitlement programs for the long haul and reform our tax code in a way that would ... lower rates for corporations.”...

Both the decision to make no changes to the quantitative easing program and Yellen’s appointment make clear that the US government is committed to putting unlimited social resources at the disposal of Wall Street, even while moving full steam ahead to slash social programs that keep millions of people out of poverty.

3---More on the failure of Abenomics, Tseosterone Pit

Japan Beer Shipments hit all-time low. The one metric that really counts in this world, particularly in Japan, shipments of beer and cheaper “quasi beer” – just say no! – tells a somber story. Shipments in September fell 2.9% from August. As always when something goes wrong in the economy, the weather got blamed, including a typhoon. OK, I get that. But typhoons don’t last all month. And then you’d think there’d be some pent-up demand afterwards to pull out the month. Beer shipments for the January through September period fell 0.8% to 318.2 million cases, the lowest ever recorded in Japanese beer history for this period, according to data by the major breweries. ...

Ferrari: Abenomics is working for us. Giuseppe Cattaneo, head of Ferrari’s Far East division, said in an interview in Tokyo that sales in Japan will soar 30% in 2013, from the 302 cars it sold in Japan in 2012, after having already soared 28% in the first half. What is pushing up sales? “This new euphoria, that you can feel staying in Tokyo, related to Abenomics,” he said as the trillions that the Bank of Japan is printing are being handed around at the top of society and as massive taxpayer-funded stimulus programs for Japan Inc. are kicking in, with more planned for next year. It’s all very effective in selling Ferraris: the new “458 Speciale,” when available for sale next year, will go for about ¥32.9 million ($338,000). The entry-level Ferrari, the California 30, can be obtained for a modest ¥23.9 million ($245,000). And some of this Abenomics wealth will trickle down to the few guys and dealerships that sell Ferraris and other exotic supercars. While the rest of the people are struggling with basics. Here is my take on the whole industry

Japan machine tool orders, down 17th month in a row, dropped 6.3% in September year over year to ¥100.6 billion. They're volatile like many of these monthly indices: domestic orders were up for the 3rd consecutive month, soaring 36% to ¥42.1 billion. Overseas orders dropped for the 12th month in a row, plummeting 23% to ¥58.5 billion. These "metal cutting machine tools" are closely watched in Japan – though they account for only a small part of the economy – because they’re seen as an indicator of industrial investment in industries like autos, and because Japanese tool makers used to be perched at the top of the global heap. But that’s no longer the case.

4---The Real Debt Ceiling Nightmare the White House Desperately Wants to Avoid, Daily Finance

"...Many informed people are worried" (about) "A freeze in the tri-party repo market, akin to the cascade of troubles that followed the Lehman Brothers bankruptcy in 2008."....
 
In 2008, more than a third of that collateral was mortgage-backed securities. When Lehman went bankrupt, its lenders began a "fire sale" of the securities it used as collateral, which drove down the value of other mortgage-backed securities, which led to more fire sales. This dynamic would eventually lead to a freeze in the repo markets, which, at the time, provided $2.6 trillion in funding to the banks each day.....

 
Today, most of the collateral in use is U.S. Treasuries and "agency securities" -- mortgage-backed securities guaranteed by the U.S. government:
... if the ugly day of a default comes, lenders may simply stop accepting U.S. debt as collateral. That will have the effect of sucking some $600 billion in liquidity out of the banking system. Unable to get funding for Treasurys, securities dealers would be pressured to sell them-or other assets-to find new funding, creating a fire sale dynamic.....

 And, of course, this scenario is only about how the Treasurys work in the repo markets. U.S. debt is used as collateral for derivatives swaps and numerous other transactions; if they are suddenly worth less than expected, lenders can be expected to demand more collateral up front, putting even more pressure on the financial system. That's why pressure is building to raise the ceiling before the world's largest economy enters a scenario with so much uncertainty."
 
5---Pity the Poor American---The War on Terrorism … or Whatever
by WILLIAM BLUM, counterpunch
“U.S. hopes of winning more influence over Syria’s divided rebel movement faded Wednesday after 11 of the biggest armed factions repudiated the Western-backed political opposition coalition and announced the formation of an alliance dedicated to creating an Islamist state. The al-Qaeda-affiliated Jabhat al-Nusra, designated a terrorist organization by the United States, is the lead signatory of the new group.” 

– Washington Post, September 26, 2013
Pity the poor American who wants to be a good citizen, wants to understand the world and his country’s role in it, wants to believe in the War on Terrorism, wants to believe that his government seeks to do good … What is he to make of all this?
For about two years, his dear American government has been supporting the same anti-government side as the jihadists in the Syrian civil war; not total, all-out support, but enough military hardware, logistics support, intelligence information, international political, diplomatic and propaganda assistance (including the crucial alleged-chemical-weapons story), to keep the jihadists in the ball game. Washington and its main Mideast allies in the conflict – Turkey, Jordan, Qatar and Saudi Arabia – have not impeded the movement to Syria of jihadists coming to join the rebels, recruited from the ranks of Sunni extremist veterans of the wars in Chechnya, Iraq, Afghanistan, and Libya, while Qatar and the Saudis have supplied the rebels with weapons, most likely bought in large measure from the United States, as well as lots of of what they have lots of – money.

6---Japan Machine Orders Jump to Highest Since Lehman Sank: Economy, Bloomberg

7---The Dollar and the Debt Ceiling , project syndicate

8---Minutes show Fed still sees taper this year, marketwatch

9---FOMC minutes show Fed officials fretting over QE tapering decision, housingwire

10--First Glances at September New-Home Sales Spark Worries, WSJ

11---Fears for Economy Kept Stimulus Intact , NYT

12---Twenty-Eight Money Market Funds That Could Have Broken the Buck: New Data on Losses during the 2008 Crisis , NY Fed

During the financial crisis in 2008, just one money market fund (MMF) “broke the buck”—that is, its share price dropped below one dollar. The Reserve Primary Fund announced on September 16 that the value of its shares had dropped to 97 cents. As we discussed in a previous post, Reserve’s announcement helped spark a widespread, damaging run on MMFs that slowed only when the federal government intervened three days later to backstop the funds

13--Deposit growth ≠ loan growth , sober look

14---Jobless claims back to reality , sober look

15---First signs of federal government mess impacting consumer spending , sober look

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