Sunday, January 5, 2014

Today's Links

1--Nothing fair or right’ about Boeing demands, Jeff Johnson, The Stand

In 2011, just two years ago, Machinists District 751 members at The Boeing Co. voted to ratify a long-term five-year contract that was an extension of their existing contract. They did so at the company’s request and with the company’s promise of securing long-term Boeing production work. That 2011 contract extension benefited both the company and the Machinists, secured the 737 MAX work in Washington state, and gave the company what they said they were looking for: labor stability and peace.

Now the company has returned and asked to extend the contract again. The company is insisting that, in order to secure 777X manufacturing and assembly work in Washington state, Machinists must again re-open their contract that doesn’t expire until 2016. But this time, it’s clear this is not about labor stability. It’s about cutting compensation. Boeing is demanding unprecedented takeaways from their employees at a time when the company is enjoying record profits, sales, and executive bonus packages

The elected membership representatives of Machinists District 751 strongly believe that these takeaways are excessive and unnecessary. This is not a case of making sacrifices to see a company through tough times. This is a case of a company that is flush with cash, orders and profits not only refusing to maintain its workforce’s existing wages and benefits, but also demanding that they give up their pensions under the threat of moving work elsewhere.

There is nothing fair or right about what Boeing executives are demanding. In fact, it is a slap in the face of the Washington workforce that builds the best commercial jets in the world, delivers them at unprecedented production rates, and is absolutely driving Boeing profits into uncharted territory.

2--NY Fed, "We still don't know how QE works." , zero hedge

Well, it took three years, but finally the Goldman Sachs-based head of the New York Fed, Bill Dudley, admitted what we all knew. From a speech just given by NY Fed's Bill Dudley at the 2014 AEA meeting in Philadelphia:

"We don't understand fully how large-scale asset purchase programs work to ease financial market conditions"

3---Aero Mechanic, Union News (Boeing strike roundup)

4---On secular stagnation, Larry Summers, Reuters
(Summers makes case for "more of the same"...much like argument for self equilibrating markets before crash)

Why should not the economy return to normal after the effects of the financial crisis are worked off? Is there a basis for believing that equilibrium real interest rates have declined? There are many a priori reasons why the level of spending at any given level of safe short-term interest rates is likely to have declined. These include (i) reduced investment demand, due to slower labor force growth and perhaps slower productivity growth; (ii) reduced consumption demand, due to a sharp increase in the share of income held by the very wealthy and the rising share of income accruing to capital; (iii) on a global basis increased savings and increased risk aversion, as governments accumulate trillions in liquid reserves; (iv) the continuing effects of the financial crisis, including greater costs of financial intermediation, higher risk aversion, and continuing debt overhangs; (v) continuing declines in the cost of durable goods, especially those associated with information technology, meaning that the same level of saving purchases more capital every year; and (vi) the observation that any given real interest rate translates into a higher after tax real interest rate than it did when inflation rates were higher. Logic is supported by evidence. For many years now indexed bond yields have trended downwards. Indeed, U.S. real rates are substantially negative at a five-year horizon.

Some have suggested that a belief in secular stagnation implies the desirability of bubbles to support demand. This idea confuses prediction with recommendation. It is of course far better to support demand by supporting productive investment or highly valued consumption than by artificially inflating bubbles. On the other hand, it is only rational to recognize that low interest rates raise asset values and drive investors to take greater risks, making bubbles more likely. The risk of financial instability provides yet another reason why preempting structural stagnation is so profoundly important.

5---Is the economy about to go boom, econbrowser

From the Chinn and Frieden entry:
Is the American economy finally going to grow rapidly? Our book, Lost Decades: The Making of America's Debt Crisis and the Long Recovery, stressed that recovery would be long and slow, and could be hampered by such misguided policies as withdrawing fiscal stimulus too rapidly. Nonetheless, five years after the end of the Great Recession, there is finally some cause for optimism. GDP and employment growth are accelerating and manufacturing is rebounding, in large part due to growing exports. With corporate profits at record levels, business fixed investment is also going to surge—especially now that uncertainty created by congressional fiscal brinksmanship appears to have been resolved. Prospects for continued growth are good, especially because the economy is finally shaking off the aftereffects of accumulated household debt. Equity markets and home values have risen, bringing real household net worth back to its pre-recession peak. This has helped clear the debt overhang that held back consumer spending and bank lending for so long.

Of course, none of this means our longer term problems are solved:
Longer-term challenges to sustained American growth remain. One is the high, and increasing, degree of income inequality. The share of national income accruing to the wealthy has continued to rise, even as real median income has stagnated. This income disparity makes it unlikely for consumption to remain at levels necessary for sustained growth. ...   

6---Morningstar Executive Gives Assessment of New CFPB Rules, DS News

7---Market Analysts Expect Slowdown in Housing Recovery in 2014, DS News

8---Summers Calls for U.S. Fiscal Stimulus, NYT

An unusually weak and intractable U.S. economic recovery requires another dose of fiscal stimulus to have a fighting chance of being sustained, Harvard economist Lawrence Summers said Saturday.
Mr. Summers, speaking at the American Economic Association meeting in Philadelphia, expanded on his notion that the economy is undergoing a period of “secular stagnation” where there are not enough good investment opportunities to enable full employment.

“We may be doomed to oscillation between inadequate and slow growth and bubbly, unsustainable and problem-creating growth,” he said.

“Fiscal consolidation in such circumstances is a step importantly in the wrong direction.” The situation requires “direct fiscal policy action,” Mr. Summers added.

He suggested the Federal Reserve’s loose monetary policy risked creating asset bubbles and therefore could not be pushed much further to support the expansion.

“If growth is rapid but associated with financial conditions that are on their way to becoming unsustainable, that in many ways is a corroboration of the line of argument I am presenting,” Mr. Summers said.

“Given current conditions, and given current savings and investment propensities, growth with sustainable finance is likely to be difficult to maintain.”

Mr. Summers noted that google searches for the term “‘covenant-lite,” bonds issued without protections for creditors, jumped again starting in 2012.
Instead, the government should focus on productivity-enhancing investments in infrastructure to spur spending, he said.

“To put the point in a more colloquial way: If a time when we can borrow money on currency that we can print ourselves for the long term at 3%–and the construction unemployment rate is in double digits–is not the moment to repair [New York's] Kennedy airport,” he said. “When will that moment ever ever be?”

9---Beware of impending "post taper terror" when economies begin to rebalance, RT

2013 was the year where certain governments continued to be immolated on a symbolic funeral pyre as euro authorities sought to keep the flawed single currency alive at any price. Bank customers in Cyprus, ranging from Russian companies, through a significant quantity of the companies quoted on the Warsaw Stock Exchange and many individuals across the world found their assets appropriated. Rather than burn bondholders and others holding risk capital (Germany protected its bankers as they did in Ireland and elsewhere), the depositors found their deposits being stolen. The theft axis was one which carried on throughout the year. In an audacious deployment of arcane EU accounting rules previously exploited by Hungary, the Polish government de facto confiscated over half the nation’s private pension funds in an attempt to make up for their inadequate fiscal management.

Ultimately, most global citizens ended the year with their pockets having been picked in some way by rapacious governments, albeit through stealthy means... The daft policy of Quantitative Easing continued apace. In the vanguard remained the Federal Reserve handing bankers a cool 85 billion dollars every month to perpetuate the largely bankrupt system. During 2013, the US alone every month spent twice the annual GDP of Serbia in a balance sheet shuffle which a non-economist might prosaically term a confidence trick.

Even some traditional congressional spendthrifts have realised they can’t maintain this suicidal ‘rob Peter to pay bankers’ policy. Thus the second half of 2013 was spent obsessing about the ultimate financial terror (aside from the bankers’ previous hegemony). Outgoing Fed Chairman Ben Bernanke plotted a way out of the ‘crazynomics’ created by the ill-considered QE policy knee jerk after the credit crunch....

For those lost in the arcane minutiae of quantitative easing (who isn’t?), it remains true that government oversaw a crazy party during the last decade where politicians maintained a delusion that they could inflate property markets with impunity. Banks joined the party and the result was chaos when inevitably the boom cycle led to bust. Sadly the party has long ended in the real economy but the bankers are being lubricated by a central banker punchbowl which the Fed is trying to gradually siphon out of the bar.

However, the damage has already been done and hence the terror of theft mentioned earlier will likely soon become post taper terror. Western politicians of left and right have successfully created a dangerous whirlpool of QE debt which has fed massive asset inflation - from fine art to classic cars through all manner of investment markets.
A day of QE reckoning is coming and the mood on the streets is understandably angry as normal business has been left behind in the bizarre escalation of a central bank spending spree which has only proven the ultimate impotence of government to create tangible wealth. Ironically it is the very banking elite the G20 pledged to curtail (Pittsburgh 2009) which have profited as everybody else has felt their wealth reduced through higher taxes, lower savings rates and the colossal failure of this unprecedented government interventionist phase to actually deliver any benefits to the economy at large. At least one could argue that some governments have finally succeeded with redistribution of wealth - problem is the people have paid to keep bankers and the absolute richest on their pedestals.
Sooner or later the taper will give way to terror and an incredible rebalancing will begin. However 2013 was dominated by what amounts to tawdry theft.

10---Hundreds Dead as Fallujah Falls to al-Qaeda, antiwar
11---Khodorkovsky's release augurs Berlin-Moscow détente(?), wsws

While it may be true that Russia’s richest man landed behind bars because he tangled with Putin and his circle of power, that does not make him a martyr of democracy. Khodorkovsky, now 50 years old, is one of that exclusive club of oligarchs who, after the collapse of the USSR, used their starting position in the Communist Youth League to enrich themselves by means of robbery, fraud and speculation to take over formerly nationalised property. They left behind not only a social wasteland, but also many dead bodies.

Once the judicial authorities were let loose on Khodorkovsky, it was not difficult to find evidence for his conviction. In September 2011, even the European Court of Human Rights approved the actions of the Russian authorities against Khodorkovsky’s oil company Yukos. His prison sentence was at most “unjust,” because other oligarchs who had perpetrated similar crimes were spared prosecution.
What makes Khodorkovsky of interest to German politicians is his absolute commitment to the looting of social wealth. “Our compass is profit, our idol is Her Majesty, capital,” is his oft-quoted credo from the year 1993. For Khodorkovsky, freedom means primarily the unrestricted freedom of the market, including the opening up of Russia to Western capital.

This brought him into conflict with Putin, who also protects the wealth of the Russian oligarchs, but regards a strong Russian nation-state, which can also act internationally as a great power, as vital to a functioning Russian capitalism.

Probably the most important reason for Khodorkovsky’s arrest in autumn 2003 were his efforts to sell up to 50 percent of the Yukos oil company to the US corporations Exxon and Chevron. For the Kremlin, this was not acceptable. After Khodorkovsky’s conviction, Yukos was broken up and incorporated into the state-dominated oil company Rosneft, which also controls the gas monopoly Gazprom, and is now the largest energy company in the world.

The strategic role of oil and gas has changed over the last ten years. New extraction methods, such as deep sea drilling and fracking, have unlocked new deposits globally, undermining Russia’s position as an energy exporter. Putin was therefore looking for new ways of strengthening the position of Russia. The main project of his third term as president is to build a Eurasian Union. This is to be modelled on the European Union, and would include large parts of the former Soviet Union and other countries.

Before the presidential elections, Putin presented the project in a detailed article in Izvestia on October 3, 2011. He stressed that the Eurasian Union did not “entail any kind of revival of the Soviet Union … It would be naïve to try to revive or emulate something that has been consigned to history.”
Putin wrote that the Eurasian Union promised to strengthen Russia’s global position: “We suggest a powerful supranational association capable of becoming one of the poles in the modern world and serving as an efficient bridge between Europe and the dynamic Asia-Pacific region.”

At the same time, he denied that the project was directed against the European Union. Rather, the Eurasian Union would “join the dialogue with the EU.” The goal is “a harmonised community of economies stretching from Lisbon to Vladivostok.” The partnership between the Eurasian and the European Unions would “prompt changes in the geo-political and geo-economic setup of the continent as a whole, with a guaranteed global effect.”

Putin’s article triggered disquiet in the US and Europe. There was hardly a major newspaper or a think tank which did not comment on it in detail. In particular, the German and US governments concluded that their strategy—bringing large parts of the former Soviet Union under their economic and political control, increasingly isolating Russia, and strengthening their influence in strategically important Central Asia—was at risk.

Even Beijing reacted nervously. It saw Putin’s foray as a rival project to the Shanghai Cooperation Organisation, which is meant to strengthen China’s position in Central Asia.

The right-wing American think tank Heritage Foundation warned: “Russia’s Eurasian Union could endanger the neighbourhood and U.S. interests.” It advised the US and its allies in Europe and Asia, “to balance the Russian geopolitical offensive and protect U.S. and Western interests”.

At a press conference in Dublin in December 2012, then-US Secretary of State Hillary Clinton clearly indicated that the United States will not tolerate Putin’s project. There is a “move to re-Sovietise the region,” Clinton said, regarding talk of a Eurasian Union. “But let’s make no mistake about it. We know what the goal is and we are trying to figure out effective ways to slow down or prevent it.”
The EU and Germany are trying to pull former Soviet republics onto their side under the “Eastern Partnership.” This project is aimed at bringing Ukraine, Moldova, Belarus, Georgia and Armenia closer to the European Union. The EU explicitly excludes simultaneous membership of the Eurasian Union and the Eastern Partnership.

The conflict escalated last November when, at the last minute, the Ukrainian government refused to sign an Association Agreement with the EU. The agreement with the EU would have meant massive cuts in pensions and social spending, as well as gas price increases for private citizens, which the government feared it would not survive politically. On the other hand, Russia was offering the almost bankrupt country loans and gas price discounts of some $20 billion.

The EU and the US responded by massively supporting pro-European protests against President Viktor Yanukovych and his government. The UDAR party of professional boxer Vitali Klitschko, a spokesman of the opposition, is sponsored and trained by the Konrad Adenauer Foundation of Angela Merkel’s Christian Democratic Union (CDU). They do not object when Klitschko regularly stands side by side with the fascist Oleh Tyagnibok from the All-Ukrainian Association “Svoboda.”

So far, the opposition has not succeeded in forcing the government and the president, who have substantial backing in eastern Ukraine, to resign. But they are continuing demonstrations with Western support—signalling to the Kremlin that they are willing to divide the country, should it join Putin’s union. Without the 45 million inhabitants of Ukraine, the largest ex-Soviet republic after Russia, the Eurasian Union would be a rump organisation.

It is in this context that Khodorkovsky’s release must be seen. Since German reunification 23 years ago, the German government has systematically worked to gain a foothold in Eastern Europe and the ex-USSR. In this, Berlin is following the traditional thrust of German imperialism, which in the First and especially the Second World War had conquered Ukraine and parts of Russia.

Berlin has never excluded the possibility of cooperation with Putin, as long as this is on its terms. Chancellor Gerhard Schröder (Social Democratic Party, SPD) enjoyed a personal friendship with the Russian President, and attested him to be a “flawless democrat.” Now Berlin sees a new opportunity to get back in business with Putin on its own terms. While in Ukraine it supports and organises the anti-Russian protests, Berlin hopes simultaneously for a greater opening up of Russia for German capital.

This is how Alexander Rahr, Genscher’s assistant in the negotiations, interprets Khodorkovsky’s release. “If there are politicians who can influence Putin, it is the Chancellor and the former designers of German Ostpolitik ,” he wrote on 2 January in Die Welt. “The fact that Khodorkovsky was flown to Germany after his pardon shows that Putin is seeking a rapprochement with the West via Berlin.”


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