Saturday, April 12, 2014

Today's Links

1--- Time to rebuild infrastructure, Lawrence Summers


Total incomes are about $1.5 trillion less today — or $5,000 per person — than was anticipated in 2007 before the financial crisis began. The share of American adults working has increased only slightly since the recession's trough, and more than 5 million fewer people are working than when employment was at peak levels in the mid-2000s. Median family incomes and hourly wages have remained essentially stagnant for more than a generation.


The single most important step the US government can take to reverse these discouraging trends is to mount a concerted, large-scale program directed at renewing our national infrastructure. At a time of unprecedented low interest rates and long-term unemployment, such a program is good economics but, more fundamentally, it is common sense....


There is increasing concern that we may be in an era of secular stagnation in which there is insufficient investment demand to absorb all the financial savings done by households and corporations, even with interest rates so low as to risk financial bubbles. Raising demand through greater infrastructure investment is an antidote for such malaise as well as a source of better employment and economic growth.
Why? Investing in infrastructure offers the prospect of expanded economic capacity
...
From the intercontinental railway to the interstate highway system to the Internet, American economic progress has depended on fundamental infrastructure investments. Our generation has not been doing its part. It is time for us to step up.


2---Larry Summers and "radical economic dysfunction", Rob Urie, counterpunch


...it was the very same Larry Summers now pushing his structural stagnation theory who as part of the Obama administration publicly asserted the need for New Keynesian economic policies while doing everything in his power to assure that they were considered politically infeasible inside the administration. To his credit secular stagnation economist Paul Krugman warned at the launch of Mr. Obama’s economic ‘stimulus’ plan that it was (way) too small and that the likely political result would be to ‘prove’ that government spending to buy stuff and put people to work doesn’t result in stuff being bought and people being put to work. And to those who were otherwise occupied at the time, what followed was one of the more grotesque scam-fests in human history as Wall Street banks, under Mr. Summers’ and Treasury Secretary Timothy Geithner’s tutelage, used faux public interest initiatives like the mortgage ‘relief’ programs and mortgage ‘settlements’ to restore banker bonuses on the backs of the currently stagnated. This doesn’t mean that the secular stagnation crowd isn’t sincere in the present. But it does mean that concern is being kept at a level of abstraction that sees the second-order looting and transfer of trillions of dollars in public funds to culpable bankers as economically ‘neutral’ when they were the central economic accomplishments of the Obama administration and were / are socially catastrophic.


As was the case with Dorothy as she was about to depart the land of Oz, the way home for Western capitalism was always in theory but a few clicks of the heels away. There were a number of relatively straightforward policies that Mr. Obama could have implemented when he entered office that could have restored economic vitality reasonably quickly. Nationalizing the Wall Street banks and turning them into public utilities would have eliminated their extractive role in the broader economy and limited the financial plutocrats’ catastrophe generating hold over public policy. Using bailout funds to ‘buy-down’ negative housing equity would have had the dual effects of rendering banks and homeowners solvent and the housing bust but a distant memory. And a public jobs program that guaranteed employment at a living wage with full benefits to all comers could have reoriented the ‘makers / takers’ storyline to joint interest in solving social problems. The paths that were chosen of giving all of the bailout money to the banks while leaving those who were looted by them to fend for themselves and of adding insult to injury by setting up programs claimed to help the looted while in fact ‘foaming the runway’ with their misery and economic well-being set up the current dynamic of self-proclaimed ‘makers’ living large on the public dime while externally proclaimed ‘takers’ suffer the consequences of radical economic dysfunction. Larry Summers was at the heart of each and every one of these policies.
...
The dramatic upward redistribution of recent decades is the result of specific government policies and downward redistribution could in theory be accomplished in much the same way. This is an important point— upward redistribution has had little to do with ‘market’ forces and ‘correcting’ it would in capitalist economic theory ‘improve’ market outcomes. The political challenge of accomplishing this is (1) the myth that initial income and wealth distribution is the result of market forces provides the illusion that it is ‘natural’ and (2) the existing plutocracy controls the levers of official power that makes ‘official’ redistribution improbable. The social conditions that facilitated the New Deal were people in the streets willing to fight for a different way. The ‘secular stagnation’ argument isn’t going anywhere without large numbers of people being willing to force the issue. But then the question would be: why fight for half measures that preserve the existing order when it is the existing order that is responsible for current conditions?


3--Stocks face earnings blues after tech selloff, Reuters


4---G-20 lauds ‘Abenomics,’ tax hike but not reforms, JT (So, shrinking growth is good?)


Finance Minister Taro Aso said Friday that Japan’s efforts to boost the economy and restore its precarious fiscal health were welcomed at a two-day meeting of the Group of 20 finance chiefs in Washington.
Aso said he explained to his G-20 counterparts that Japan raised its consumption tax rate for the first time in 17 years to cover swelling social security costs for the graying population and has taken necessary steps to ease the negative impact of its first stage.


“Japan’s attempt to simultaneously achieve economic growth and fiscal rehabilitation was appreciated,” Aso said at a joint press conference with Bank of Japan Gov. Haruhiko Kuroda after the G-20 gathering was wrapped up.


5---Time to turn off the free money: US will not support more QE in Japan, JT


Japan Bank for International Cooperation Gov. Hiroshi Watanabe said additional BOJ easing measures would not be supported by the United States, which is gradually reducing its own bond purchasing program.
“I’m not sure whether it is good for the United States and Japan to look in much different directions,” Watanabe, a former vice finance minister for international affairs, said in a meeting with reporters earlier this month. “I don’t think the United States will support” further BOJ easing.


On April 4 last year, the BOJ embarked on an aggressive, well-advertised monetary easing program designed to end nearly two decades of deflation. The new program, coinciding with Kuroda’s appointment as BOJ chief, features unprecedentedly large purchases of government bonds aimed at doubling Japan’s monetary base to ¥270 trillion by the end of this year.


In light of the side effects of the radical program, which could also take a toll on the global economy, the BOJ must map out an exit strategy from what it calls “quantitative and qualitative monetary easing,” pundits said.
Some central banks have created a framework for avoiding the adverse impact of such policies, former BOJ Deputy Gov. Kazumasa Iwata said in a recent interview. “The BOJ also ought to set certain conditions and mechanisms toward the normalization of its current policy,” said Iwata....


Even within the BOJ, some policymakers have started to argue that the bank should not try to pump more money into the economy because there is a risk this will impede the financial markets.
“If the current large-scale monetary easing policy were to be protracted or such policy strengthened by additional measures, the associated side effects would instead outweigh the positive effects, and this would undermine economic stability in the long run,” BOJ Policy Board member Takahide Kiuchi said last month.....


Despite lingering market pressure on the Bank of Japan to take further easing steps, its Group of 20 counterparts might not welcome the central bank’s next move.
With concern mounting about how the BOJ’s unprecedented purchases of government bonds and risky assets will impact global markets, the G-20 finance chiefs might pressure the BOJ in the near future to clarify how it will phase out the deflation-busting measures.
...
 some experts have expressed caution that the BOJ may draw international criticism if it takes additional credit easing measures that could have strong side effects without preparing an exit strategy.
As the U.S. Federal Reserve has been asked by emerging economies at the G-20 gathering to communicate with the financial markets about how fast it will taper its own giant monetary stimulus program, the BOJ could soon find itself in the same situation.
Many observers say the BOJ is likely to take action early this year to achieve its 2 percent inflation target because the economy is widely expected to stall following the April 1 consumption tax hike — Japan’s first in 17 years.
On Tuesday, after the BOJ decided to leave its aggressive monetary easing policy in place, Kuroda said further easing was not on his mind. “We are not currently thinking about additional easing” because the economy is steadily on course to attain the 2 percent inflation target by spring 2015, he said.


The government said last month that the core consumer price index, which excludes fresh foods but not energy, rose 1.3 percent in February from a year earlier, rising for the ninth straight month. Kuroda said the BOJ will “not hesitate to make adjustments if necessary.”
Takeshi Minami, chief economist at Norinchukin Research Institute said, “There are few people who believe inflation will really rise to 2 percent in fiscal 2015, with expectations persisting that upward pressure on prices will ease” as the tax hike is set to cool domestic demand.
“Gov. Kuroda is likely to consider and carry out further monetary easing around summer in 2014, when price rises may show signs of peaking out,” Minami added.
Indeed, many analysts say the core CPI, minus the inflationary effect of the 3-point tax increase to 8 percent, is forecast to climb only 1 percent in fiscal 2014 ending March 2015, meaning the BOJ would fail to achieve the inflation target. But the bank is not in a position where it can decide alone whether to relax its monetary grip, given that its policy change will affect financial markets across the globe.


6---US defence secretary’s provocative tour of Asia, wsws


Washington’s anti-Chinese “pivot” is closely linked to the escalating US confrontation with Russia over Ukraine. The Obama administration is proceeding with US imperialism’s long-held ambition to dominate the vast Eurasian landmass—stretching from China through to Eastern Europe—which, in turn, is central to its strategy for global hegemony.


The capitalist regimes in Beijing and Moscow are obstacles that the US is no longer prepared to tolerate. Amid a deepening economic crisis of global capitalism, the US and its allies are engaged in a reckless drive to subordinate China and Russia, along with their markets and resources, to their direct exploitation. The whipping up of reactionary ethnic and linguistic divisions in Ukraine is a warning that the same methods will be used to fragment Russia and China and transform them into semi-colonies...


Just as it is encouraging German rearmament in Europe, the US is pressing for the remilitarisation of Japan. Washington has given its full support to the right-wing government of Prime Minister Shinzo Abe as it increased military spending, moved to end constitutional restrictions on the armed forces, established a National Security Council, and shifted Japan’s strategic orientation to “island defence”—that is, against China.


7--US-backed regime drops deadline against east Ukraine protesters, but threat of war remains, wsws


The fraud of the Western powers’ claims to be championing democracy has not been lost on people in eastern Ukraine. Interviewed by Russian Television, Aleksey, a Kharkiv student, commented: “In Crimea, people voted, overwhelmingly, to return to Russia … But the West calls it unconstitutional and undemocratic. In Ukraine itself, the democratically-elected government has been overthrown and policies that nobody really wants are being pushed down our throats. And … this is called democracy!”...


When Yatsenyuk and other officials travelled to Donetsk yesterday, they did not meet with the protesters, but instead met with the eastern Ukrainian governors and mayors imposed by the regime, as well as major business figures, notably tycoon Rinat Akhmetov, Ukraine’s richest man. Those in the talks included the appointed regional governor, a billionaire metals tycoon, Sergey A. Taruta, whose offices remain occupied by the self-proclaimed Donetsk People’s Republic.
Echoing the demands of the EU and IMF, Yatsenyuk laid out what he described as a recipe for national unity: “We must tell people that we know it’s tough, but we know how in the future to secure jobs, increase salaries, attract investors, distribute more authority, and what to do so people are content with life.”


The reality of the “tough” measures required by the IMF in return for a $27 billion loan is already being spelt out by a 120 percent hike in gas and heating prices, the cutting of social benefits, including free medical assistance, and the closure of several hospitals.
The Associated Press (AP) reported that there is also “an already lingering sense of injustice” over the inevitable requirements of the IMF for the closure of many of the region’s state-supported heavy industries. Since the dissolution of the Soviet Union in 1991, tens of thousands of jobs have already been destroyed in these industries, and wages have been driven down to near-starvation levels....


On Thursday, NATO’s supreme commander, General Philip Breedlove, published a set of commercial satellite photos purporting to show an estimated 40,000 Russian troops and long lines of tanks, armoured vehicles, artillery and aircraft massed along Russia’s border with Ukraine. On his Twitter feed he wrote: “Russian forces around Ukraine fully equipped/capable to invade. Public denial undermines progress. Images tell story.”
However, an official on the Russian military general staff said Thursday that the images were taken in August 2013 and showed no unusual military movements.....


Yesterday, it was confirmed that four-way talks on the crisis between the US, EU, Russia and the Ukrainian regime will be held in Geneva on April 17. Russia’s Foreign Ministry said Foreign Minister Sergei Lavrov phoned US Secretary of State John Kerry to encourage the Kiev regime “to have a dialogue with representatives of the (Ukrainian) regions to create conditions allowing for comprehensive constitutional reform.”
Also yesterday, Putin said Russia would fulfil its obligations to European gas clients and had no plans to halt deliveries to Ukraine—a day after warning that supplies to Europe could be disrupted by Ukraine’s failure to pay its $2.2 billion debt for Russian gas


8---Step down??  Deputy Prime Minister Igor Shuvalov told reporters “Russia is ready to participate in supporting Ukraine together with the IMF and the European Union, RT


Ukraine should recognize Crimea’s independence, reform the country’s constitution, regulate the crisis in its eastern regions and guarantee the rights of Russian speakers if it wants to get financial help from Moscow, Russia’s finance minister has said.
“If Ukraine fulfils these four conditions, then Russia will be able to propose further steps on additional help both on financial and gas issues,” Finance Minister Anton Siluanov said after meeting with his German counterpart, Wolfgang Schauble, in Washington.


Deescalating tensions in eastern Ukraine should be peaceful, based on Ukraine’s legislation, “without discrimination against Russian-speaking population, without victims and bloodshed,” Siluanov said.
It is necessary for Ukraine to conduct constitutional reform, hold legitimate presidential elections and “form a government with which one may negotiate,” he said...


Ukraine’s gas debt is now estimated at over $2.2 billion. On Thursday, President Vladimir Putin wrote letters to the leaders of 18 European countries, including Germany and France, warning that Ukraine’s debt crisis had reached a “critical” level and could threaten transit to Europe. He also called for urgent cooperation, urging Russia’s partners in the West to take action.
According to German Chancellor Angela Merkel "there are many reasons to seriously take into account this message […] and for Europe to deliver a joint European response.”
In total, Moscow has subsidized Ukraine’s economy to the tune of $35.4 billion, coupled with a $3 billion loan tranche in December. ...


Deputy Prime Minister Igor Shuvalov told reporters “Russia is ready to participate in supporting Ukraine together with the IMF and the European Union


9---Brzezinski Sees Finlandization of Ukraine as Deal Maker , Bloomberg


A resolution may be possible “in which Ukraine deals with us, by wanting to move closer to Europe, but has a relationship also with Russia like Finland does,” said Brzezinski. “That could be accommodated if we’re intelligent and if Putin becomes less romantic about his historic role and more practical.”
Still, he warned that Putin may move on Ukraine militarily, perhaps assuming little challenge will come from the new government in Kiev and its foreign supporters.

‘New Ballgame’

“I think its possible, I’m not predicting it,” said Brzezinski, who is counselor at the Center for Strategic and International Studies in Washington.
The Russians should recognize that, unlike in Crimea, the Ukrainians are likely to resist further Russian incursions, he said.
“If the Ukrainians resist, it’s a new ballgame,” he said. “In Crimea, it was a pushover because they didn’t resist. Here, if they resist, it becomes prolonged and could last a long time.”
It will be “very difficult” for the U.S. and European nations “to justify sitting simply on the sidelines” if that happens, he said, suggesting they may be drawn into providing weapons to the Ukrainians.

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