Friday, November 22, 2013

Today's Links

1--ONE BANK TO RULE THEM ALL: Fed Minutes Reveal a Dangerous Power Grab by New York Fed , Wall Street on Parade, Pam Mertens

(Swaps strengthen global banking cartel and reduce chance of bank runs)
Back on October 31, wire services reported that the temporary dollar and foreign currency swap lines that had been put in place between central banks on a temporary basis during the financial crisis had been turned into standing arrangements.

The Associated Press explained the action as follows: “Six of the world’s leading central banks, including the U.S. Federal Reserve, say they will provide each other with ready supplies of their currencies on a standing basis, extending arrangements set up to steady the global financial system during post-2007 turbulence.”

In other words, without public deliberations, an action that was adopted as a temporary, emergency operation, now had become a permanent part of world finance – on the basis of minutes and details yet to be seen by Congress or the general public.

When those minutes were released yesterday, alarm bells should have rang out from the business press. Not only did this temporary emergency measure become permanent, but the full FOMC committee is reduced to voting on its continuance but once a year and the conduct of the program has been effectively delegated to the Chairman of the Federal Reserve and a man the American people have never heard of, Simon Potter, the Manager of the System Open Market Account and Markets Group at the Federal Reserve Bank of New York....

A couple of participants expressed reservations about the proposal, citing opposition to swap lines with foreign central banks in general or questioning the governance implications of these standing arrangements in particular.”

Instead of the full FOMC committee, which includes Federal Reserve Board Commissioners and Presidents of the regional Federal Reserve banks, approving these interventions in foreign currencies, the Chairman of the Federal Reserve will simply now consult with a subcommittee. But more troubling, the New York Fed has gained enormous power in the process. The minutes state: “authority to approve subsequent drawings of a more routine character for either the dollar or foreign currency liquidity swap lines may be delegated to the Manager [Potter], in consultation with the Chairman.”
Simon Potter already wields enormous and nontransparent power in financial markets. Potter is head of the Markets Group which oversees a sprawling trading operation at the New York Fed. Of the 12 regional Federal Reserve Banks, only the New York Fed has a trading floor rivaling that of Goldman Sachs. Potter is also Manager of the System Open Market Account (SOMA) at the New York Fed. According to the Fed’s web site, SOMA operations are designed to influence bank reserves, money market conditions, and monetary aggregates.

2---Housing on shaky ground, economist

3---The Dollar and Its Rivals, project syndicate

4---We came, we saw, we stayed, Pepe Escobar RT

The occupation, for all practical purposes, will continue. This has nothing to do with fighting the War on Terror or jihad. There’s no Al-Qaeda in Afghanistan. The few remnants are in Waziristan, in Pakistani territory. The US is – and will remain - essentially at war with Afghan Pashtuns who are members of the Taliban. And the Taliban will keep staging their spring and summer offensives as long as there are any foreign occupiers on Afghan soil...

We just need to picture, for instance, a practically inevitable future development; Washington deciding to deploy the US missile defense system in Afghanistan (it already happened in Turkey). Russia and China already see that the US may have lost the economic race for Central Asia – as China clinches deal after deal in the context of expanding its New Silk Road(s) grand strategy. What’s left for Washington is – guess what – bits and pieces of the same old Pentagon Full Spectrum Dominance doctrine, as in military bases to ‘monitor’ both China and Russia very close to their borders. 
What’s certain is that both Russia and China – not to mention Iran – all see this Operation Occupy Afghanistan Forever for what it is; yet another (military) chapter of the American ‘pivoting to Asia’

5---Ukraine Balks:  The EU is a sinking ship, RT

If you want your country to be ruined, then join the EU or sign a trade deal. ... I think for the future of Ukraine, it’s quite clear: to be with Russia for energy deals, for its economy. The EU is a sinking ship, it’s a Titanic of 2013 and no one in a right state of mind wants to join the sinking ship or buy a ticket to join a sinking ship. Ukraine’s future must lie with Russia, Belarus and Kazakhstan in a Customs Union

6---JFK assassination, David North , wsws

In August 1945, the Truman administration, anticipating the coming struggle with the Soviet Union, made the cold-blooded decision to drop atomic bombs on two Japanese cities, Hiroshima and Nagasaki, to demonstrate the United States’ omnipotence and ruthlessness. The atom bomb was an instrument of political rather than military necessity.
As the American historian Gabriel Jackson later wrote: “In the specific circumstances of August 1945, the use of the atom bomb showed that a psychologically very normal and democratically elected chief executive could use the weapon just as the Nazi dictator would have used it. In this way, the United States—for anyone concerned with moral distinctions in the conduct of different types of government—blurred the difference between fascism and democracy.” [Civilization and Barbarity in 20th-Century Europe (New York: Humanity Books, 1999), pp. 176-77]

The composition of the Warren Commission precluded any serious investigation into the assassination. Its members included such high level guardians of state secrets as former CIA director Allen Dulles (who had been fired by Kennedy in the aftermath of the Bay of Pigs fiasco) and John J. McCloy, an old friend of Dulles, who was among the most influential and powerful of the “Wise Men” who directed American foreign policy following the Second World War. McCloy played a critical role in persuading Warren Commission members who doubted the single gunman theory to keep their dissenting opinions to themselves and go along with a unanimous finding that Lee Harvey Oswald had acted alone in the killing of the president.

One of the commission members, Congressman Hale Boggs, who was to become the House majority leader, subsequently acknowledged that he had doubts about the infamous “single bullet” theory (which asserted that the same bullet passed through both Kennedy and Texas Governor John Connally). Boggs was killed in October 1972 when his private plane apparently crashed in Alaska. Neither his body nor the plane was ever recovered....

The United States emerged from the war as the dominant capitalist power in the world. Britain had been bankrupted by the war, and its long and humiliating retreat from its earlier imperialist glory was well underway and unstoppable. The attempt by the French bourgeoisie to hang on to its empire was heading toward disaster—first in Vietnam and, somewhat later, in Algeria. The American ruling class believed that its time had come. It believed that the combination of apparently limitless industrial power, the hegemonic role of the dollar in the new international monetary system, and sole possession of the atom bomb would guarantee its domination of the world for decades to come. In a burst of hubris, it even renamed the 1900s after itself—calling it the “American Century.”....

Less than three months after his inauguration, Kennedy gave final approval for the launching of a counterrevolutionary invasion of Cuba by an anti-Castro army that had been created by the CIA. The new president received assurances that the invaders would be greeted as liberators when they landed in Cuba. The CIA knew that no such uprising was in the offing, but assumed that Kennedy, once the invasion had begun, would feel compelled to commit US forces to prevent the defeat of an American-sponsored operation. However, Kennedy, fearing Soviet retaliation in Berlin, refused to intervene to back the anti-Castro mercenaries. The invasion was defeated in less than 72 hours and more than 1,000 mercenaries were captured. The CIA never forgave Kennedy for this “betrayal.”...

In the final year of his presidency, the political divisions within the ruling class over critical issues of international policy became more intense. Kennedy’s decision to avoid an invasion of Cuba in the October 1962 missile crisis was opposed by the Joint Chiefs of Staff. Following the resolution of that harrowing crisis, which brought the United States and the USSR to the brink of nuclear war, Kennedy pursued and obtained passage of the nuclear test ban treaty

7---How effective has QE been at stimulating credit creation? , Westpac

At its simplest, the credit easing undertaken by the Federal Reserve following the GFC was intended to improve credit conditions for end borrowers, both in terms of price and availability. .... However, more than four years on from the end of the recession, credit creation in the US economy remains decidedly sub-par.

This is most obviously true for households who have remained very cautious in their appetite for leverage in the wake of the GFC. Indeed, in dollar terms, the level of household credit has remained broadly unchanged for the past two years following a moderate deleveraging episode between March 2008 and June 2011. In the past two years, we have seen one notable quarterly increase in the size of commercial banks’ mortgage books (December 2012) and a singular quarterly increase in the combined loan book of Fannie Mae and Freddie Mac (June 2013), the two conforming-loan government sponsored entities – conforming in the sense that they require a solid credit rating, a sizeable deposit (typically 20%), and the loan to be smaller than the mandated loan limit. The remaining flow of credit provided to households during the past two years has been in the form of low-deposit, low-credit-score home loans facilitated by Ginnie Mae and the Federal Housing Administration (FHA) and consumer credit. The latter has primarily been in the form of government-funded student loans, although auto-loan growth has also been supportive.

As displayed by the October Senior Loan Officers Survey (SLOS), the absence of credit creation in the household sector is the result of limited demand from end borrowers as well as the tighter lending standards introduced in the wake of the GFC which were never really rescinded. While the SLOS indicates prime borrowers have benefited from looser lending standards in the past year, this improvement is negligible relative to the initial tightening.

As an aside, it is worth noting that a special question in the October survey sought to assess the impact higher mortgage rates have had on household loan demand. The answers were consistent with available data on mortgage approvals, indicating a noticeable, albeit moderate, impact on purchase applications and a much larger impact on refinance applications. The timing of this deterioration also corresponds with the 5.6% decline in pending home sales seen in September.

Turning to the corporate sector, there has been a much more noticeable pick-up in credit creation. Indeed, an uptrend has been apparent in nonfinancial firm credit liabilities since the end of 2009, with the pace of growth accelerating moderately over the past year.

That this acceleration has occurred at a time when annual growth in business investment has decelerated from over 9% in June 2012 to little more than 2% in June 2013 is somewhat surprising – one would normally expect higher leverage to be taken on to finance greater real investment. But we don’t have to go too far for an explanation. From the flow of funds data, it is evident that nonfinancial firms have been adjusting their financial structure, funding stock buy backs and acquisitions with borrowed funds. This is not only a recent phenomenon; it has been seen throughout the recovery.

On small business lending, good information is hard to find. As best can be assessed, lending conditions for small businesses remain restrictive. The latest NFIB small business survey indicated a historically-low 30% of respondents were borrowing on a regular basis; of that group, a net 5% reported loans were “harder to get” compared to their last attempt.

This recovery’s business investment narrative then looks to have been all about US corporates maximising reported profits (both by making the financial structure more efficient and through acquisitions) as opposed to expanding capacity. It is hardly surprising then that jobs growth has remained so fickle, and that what jobs growth there has been has been focused toward household service provision instead of production and business services. That cash continues to be accumulated amongst US corporates is yet another sign of a lack of investment opportunities and a high degree of uncertainty over the outlook.

In the past we have often emphasised that, despite its end-user focus, US credit easing has failed to spark persistent momentum in the aggregate economy. Arguably, the lesson to draw from this experience is that alternative policy measures are certainly an effective way to forestall further weakness and maintain the structural integrity of the financial system. However, in and of themselves, these policies are unable to engender greater dynamism. For that, confidence and clarity around fiscal policy, household’s financial health and the broader economy are key. On each front, there is a great need for improvement.

8---Existing home sales; "Worse than expected", CNBC
(Home sales decline year over year)

Sales of existing home sales nationally fell 3.2 percent in October from the previous month, but in the West they were down 7 percent. The West was also the only region to see a year-over-year decline in home sales.....

As distress, in the form of foreclosures and short sales, move out of the West, there are far fewer low-end homes to buy. Just 6.6 percent of California homes sold in October were foreclosures, the lowest level since 2007. Supplies are down 26 percent in San Francisco, according to the California Association of Realtors, and that is pushing many buyers to condos instead of single family homes. ....

 "Bottom line, on a monthly payment basis and relative to income needed to qualify for a loan, a house in California is far more 'expensive' than from 2004 to 2008, even though house prices are not back to peak levels," said Mark Hanson, a California-based housing analyst. "Put another way, it costs a lot more today to pay for a house using a mortgage than it did from 2004 to 2008. Thus, if 2004 to 2008 was a "bubble," then this must be, too."
On the flip side, home price gains are slowing in Phoenix, which like California saw prices jump over 25 percent recently. Now they are up just 16 percent annually, according to CoreLogic. Sales fell 8 percent in September, despite a 32 percent jump in inventory, according to the Cromford Report.
Investors may be putting some properties back on the market again in Phoenix, eager to take advantage of higher prices, but those same higher prices are crimping demand. If this is an indicator of what is to come in California, that is a clear red flag.

9---October CPI Drops 0.1% on Gas, Lowest Annual Inflation Rate Since Great Recession, Economic Populist

The monthly October Consumer Price Index declined by -0.1% on gas prices.  CPI measures inflation, or price increases and for the year has increased 1.0%.  This is the lowest annual inflation since the height of the Great Recession, October 2009.  The shutdown also impacted data collection and October's sample size for prices is 25% less than normal as a result.

10---Smaller Banks' Loans Growing Faster Than Larger Rivals, WSJ

Small banks saw annualized loan growth of more than 6% in the second quarter, compared with less than 2% at the 25 largest banks, according to research by Keefe, Bruyette & Woods Inc....

The loan-growth figures reflect everything from mortgages to auto loans, credit cards and business loans.
At the end of the second quarter, loans at small banks had grown 4.7% annually compared with growth of less than 1% for big banks, according to Federal Reserve data.
The last time there was such a large disparity in lending growth was in 2008, when the financial crisis was starting to lead large banks to tighten credit significantly.
The Federal Reserve defines a large bank as one of the top 25 largest institutions ranked by assets. Small banks, according to the Fed, are all banks below that threshold.
Before the financial crisis, small banks hadn't outpaced their larger counterparts by such a wide a margin since 2005, Fed data show.
Analysts say smaller banks are more-quickly recovering from a raft of rules that is crimping banks' efforts to lend by requiring them to hold more capital. Furthermore, some big banks are still cautious about making risky loans, having been burned in the financial crisis...
The nations four largest banks ...(Chase, BofA, Citi and Wells Fargo) saw average loan growth of 1.6% in the second quarter from a year earlier, according to Charlottesville, Va., data provider SNL Financial

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