Tuesday, June 10, 2014

Today's Links

1---Seattle’s $15-an-hour minimum wage of little benefit to workers, wsws

Obama himself has done nothing to reduce inequality, and much to increase it. He has called for increasing the federal minimum wage to $10.10 while allowing extended unemployment benefits to be terminated and cutting the food stamp program twice.

There is no question that a dramatic increase in the minimum wage is fully justified. The present US minimum—last increased in 2009 to $7.25—is barely 32 percent of the average worker’s wage, second from bottom of the 34 members of the Organization for Economic Cooperation and Development. Only Mexico has a lower percentage.

But the unanimous vote by the Seattle City Council is a political maneuver aimed at quelling increasing opposition to inequality and, in an election year, bolstering illusions in the Democratic Party. That is why the measure was enthusiastically endorsed by the New York Times in an editorial headlined, “Seattle Leads the Way.”

In a statement May 29, Socialist Alternative hailed the impending passage of the minimum wage increase, declaring, “One hundred thousands workers will be lifted out of poverty.” This is a lie. Even with a full-time job, which many low-wage workers are denied, at $15-an-hour a family of four cannot sustain a decent standard of living and still qualifies for food stamps

2---What are the political forces behind Seattle’s minimum wage proposal?, wsws

The mayor’s proposal is chiefly a political ploy to bolster illusions in the Democratic Party and mollify popular opposition over immense levels of social inequality. The state of Washington is the home to eight billionaires on the Forbes list of the richest people on the planet, including Microsoft’s Bill Gates (number one at $77 billion) and Amazon’s Jeff Bezos (number 18 at $32 billion).

Murray’s minimum wage measure contains a series of loopholes for employers based on the size of the businesses and whether or not workers earn tips or receive health care benefits. Smaller employers (less than 501 employees) will not have to pay the full $15 until 2019. However, if tips and benefits are included in workers’ compensation then that deadline is pushed out to 2021. Larger employers have until 2017, unless they provide health care and then they have until 2018 to pay the full $15 wage.

3---Is liquidity stuck at banks?, VOX

Reserves are a liability in the central bank balance sheet that it is created when the central bank decides to allocate more loans to commercial banks or when it decides to buy securities. If a commercial bank decides to give a loan to one of its customer (household or business), the reserves do not disappear. Once that customer uses its loan for a purchase, these reserves are transferred from one commercial bank to another, but the level of reserves remains constant......

As a point of comparison, the profile of the series above for the US Federal Reserve is very different: they keep trending up, no decrease at all. The reason is that the US central bank has increased its balance sheet by buying securities. So reserves are created agains the purchase of those securities. In this case, the level of reserves is even more directly linked to the actions of the central bank. It is only when the central bank decides to sell those securities that the level of reserves will come down. And this is the new step that Draghi has promised in his press conference last week, the ECB is willing to engage in true quantitative easing via the purchase of asset based securities.

4--The Pundits and the President, Krugman defends Obama

5---The S&P 500 Index Just Broke Another Record Last Week, Price action

6---What If the Fed Has Created a Bubble?, El Erian

Essentially, the Fed has been pushing stock and bond prices up to "bubblish" levels, in the expectation that they will inspire the kind of consumer spending, physical investments and hiring required to subsequently justify them. The hope is that the convergence will occur in the context of full employment and inflation near the Federal Reserve’s target of 2 percent. So far, though, the wedge between asset prices and economic reality remains large, as last week's juxtaposition of new stock-market highs and still-anemic wage-inflation data demonstrated.

The danger is that the economic recovery will ultimately fail to validate artificially high asset prices, leading to significant financial instability and adverse “spillback” for the economy. The more comfortable the authorities are in their ability to counter -- and, if necessary, contain -- such potential instability, the greater their appetite for maintaining the stimulus that markets so love.

7---Russia, Ukraine, EU gas talks fail to reach deal, RT

8--The EU's "Left" crisis, Varoufakis

For four years now, European institutions are the field on which incompetence and malice compete with one another in a bid to win the prize for the most inconspicuous obfuscation of the truth: (a) that the Eurozone’s construction was faulty; and (b) that, once the never-ending crisis had began, the elites were solely interested in shifting banking losses from the banks’ asset books onto the shoulders of the weaker citizens.

If the financial sector has been stabilised, it is because the combination of massive central bank liquidity and stringent austerity propped up finance, shielded bankers (without cleansing the banks), and reflated many of the burst bubbles. And this at the cost of untold damage on Europe’s real economy, social fabric, and democracies. The interesting question, however, is: Why has the Left not benefitted from the trials and tribulations of the Eurozone’s neoliberal design and from the great pain inflicted upon the majority by the neoliberal ‘cure’?

The obvious reason is that, prior to 2008, Europe’s ‘official’ Left had invested considerable energy so as to be… co-opted into the neoliberal cabal that designed and implemented the faulty Eurozone architecture. Post-2008, once the neoliberal design began to crumble, the parties carrying the torch of the social democratic tradition did not recoil from playing an enthusiastic role as enforcers of ruthlessly reactionary economic policies. It is, therefore, not a great wonder that they are now paying the electoral price.

9--Ukraine won't pay gas bill until price settled, Itar Tass

The undisputable part of Ukraine’s debt for November-December 2013 stood at $1.454 billion as of Monday, June 9. Moscow is waiting for the debt to be repaid. However, Prodan reiterated Kiev’s position that the debt repayment will start only when a price acceptable for Ukraine is approved

10--The American System (?), Christian science

President Abraham Lincoln implemented the American System (though unable to restore the national bank). Lincoln’s advisor Henry C. Carey, the leading American System economist, defined the difference between the American System and the British System, in his 1851 book, The Harmony of Interests:

“Two systems are before the world; the one looks to increasing the proportion of persons and of capital engaged in trade and transportation, and therefore to diminishing the proportion engaged in producing commodities . . . with necessarily diminished return to the labour of all; while the other looks to increasing the proportion engaged in the work of production, and diminishing that engaged in trade and transportation, with increased return to all, giving to the labourer good wages, and to the owner of capital good profits.

“One looks to increasing the quantity of raw materials to be exported, and diminishing the inducements to the import of men, thus impoverishing both farmer and planter by throwing on them the burden of freight; while the other looks to increasing the import of men, and diminishing the export of raw materials. . . .

“One looks to exporting men to occupy desert tracts . . . which [are] obtained by aid of diplomacy or war; the other to increasing the value of an immense extent of vacant land by importing men by millions for their occupation. . . .

“One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level.
“One looks to pauperism, ignorance, depopulation, and barbarism; the other to increasing wealth, comfort, intelligence, . . . and civilization. One looks towards universal war; the other towards universal peace.
“One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world.”

A federal appeals court has overturned a judge’s 2011 decision to reject a wrist-slap deal between the Securities and Exchange Commission (SEC) and Citibank over fraudulent mortgage derivatives. The June 4 ruling effectively gives the executive branch complete discretion, independent of the courts, and further enshrines the domination of the financial aristocracy.

The appellate decision explicitly establishes that the judicial system should not pursue the facts and truth of alleged crimes when reviewing deals between the SEC and Wall Street. It insists that the duty of the judicial system is to ensure that such deals, largely worked out behind closed doors, are “pragmatic” and that judges show “significant deference” to the SEC, an arm of the executive branch.
The original 2011 decision by federal district judge Jed Rakoff blocked the SEC and Citibank from reaching a sweetheart deal over allegations that Citibank had fraudulently sold $1 billion worth of derivatives in 2007

12---ILO report: A world blighted by poverty and inequality, wsws
“[W]hen society places hundreds of proletarians in such a position that they inevitably meet a too early and an unnatural death… when it deprives thousands of the necessaries of life… forces them, through the strong arm of the law, to remain in such conditions until that death ensues which is the inevitable consequence… its deed is murder just as surely as the deed of the single individual…”
Frederick Engels, The Condition of the Working Class in England (1845)

A large majority of the world’s population lacks essential social protections, leading to the preventable deaths of 18,000 children under five each day. This is among the findings of the World Social Protection Report 2014-15 released by the United Nation’s International Labour Organization last week.

The ILO surveyed 200 countries for the availability of basic health care coverage, including maternity care, and income security for children, working-age adults and older persons. It found that in these countries only 27 percent of the working-age population and their families had access to such protections in 2012. The other three quarters—some 5.2 billion people—lacked such necessities.

“While the need for social protection is widely recognized, the fundamental right to social security remains unfulfilled for the large majority of the world’s population,” the ILO concluded. “Many of those not sufficiently protected live in poverty, which is the case for half the population of middle- and low-income countries. Many of them, about 800 million people, are working poor, and many work in the informal economy.”
The corporate-controlled media has buried this report, which paints a devastating picture of the state of world capitalism.

13---Immediately after World War II, the American secret service and military began recruiting high-ranking Nazis and Nazi collaborators for the ideological, political and military struggle against the Soviet Union., wsws

The Ukrainian fascists during the Cold War

Immediately after World War II, the American secret service and military began recruiting high-ranking Nazis and Nazi collaborators for the ideological, political and military struggle against the Soviet Union. Fascists and war criminals from Germany and Eastern Europe who had been directly involved in the Holocaust and the murder of millions of Soviet civilians were utilized for covert activities by the US intelligence agencies or worked for propaganda outlets like Radio Free Europe.

According to Harry Rositzke, who was responsible at the CIA for secret operations inside the Soviet Union, “any bastard” was good “as long as he’s anti-Communist.” [6] The network that the CIA built up in the 1940s and 1950s in Eastern Europe and the Soviet Union rested heavily on the web of Nazi collaborators.

key role was played by Reinhard Gehlen, who had led Hitler’s military intelligence service on the Eastern Front and later became the first president of West Germany’s Federal Intelligence Agency (BND), responsible for foreign intelligence operations. From 1946, he worked for Washington and was able to utilise his old contacts among Ukrainian collaborators, within the anti-Soviet army of Russian General Vlasov, and within other Nazi networks.

The CIA’s first large-scale projects to destabilise the Soviet Union included intervention in the Ukrainian civil war. The predecessor to the CIA, the OSS, together with the British Secret Intelligence Service (SIS), had already supplied the underground war being waged by the Ukrainian Insurgent Army (UPA) and the Organisation of Ukrainian Nationalists-Bandera (OUN-B) with materiel and logistics before the end of the world war. As well as military training, this included the parachute drop of agents into Soviet and Polish territory. [7] The guerrilla war in Ukraine became the prototype for similar operations by the CIA throughout the world during the Cold War.

14--Fed’s Bullard: ‘The Bubble Was Developing Under Our Noses’ , Testosterone Pit

And the bubbles that are now “developing under our noses,” to use Bullard’s term? Numerous indices have hit all-time highs, often beating prior bubble highs by a wide margin. So here are a few of these craziness indicators. Surely, Bullard and his colleagues at the Fed must have noticed them, especially since some of these indicators are produced by the Fed itself.
  • The Financial Stress Index, issued by the St. Louis Fed, hit an all-time low in the latest reporting week, beating the low reached in February 2007, a time when the foundation of the financial system was already cracking. Extremely low “financial stress” means even the most reckless decisions are getting funded and the riskiest crap is getting sold no questions asked as risk has been eliminated from the calculus.
  • Margin Debt spiked from record to record until it hit $465.7 billion in February, or 2.73% of GDP, the highest ratio ever! But in the following two months, it dropped 6.1%; the last two times it dropped after a magnificent spike was in March 2000 and July 2007, with terrific results [This Happened Twice Before, And Each Time Stocks Crashed].
  • The VIX volatility index dipped on Friday to the lowest level since February 2007 and remains at half of its historical average. It’s a sign that market participants don’t expect big price movements, and if the selling starts, no one is prepared. Hence, the notion of utter “complacency.”
  • Unprofitable IPOs – companies that go public without having made a profit, such as Twitter, and often without a clear picture of how they’ll ever make a profit – were back at record level in the first quarter. The record – 84% of all IPOs – was set during the dotcom bubble in Q1 2000 just before all heck broke lose.
  • The spread between junk-bond yields and Treasuries is the tightest since October 2007, the craziest of all junk-bond times when “Merger Mondays” – which are now back in full bloom – were adding spice to TV news shows. Another signs that investors are simply no longer demanding compensation for the risk they’re taking.
  • A record $355 billion in new leveraged loans – the riskiest loans out there – were issued last year in the US, and this year started out just as hot. Insatiable demand by desperate investors driven to near insanity by the Fed’s interest-rate repression.
  • Banks have issued a record amount of commercial loans, now $10.5 trillion.
  • Home prices have surpassed their prior bubble highs in numerous cities, including San Francisco, though those bubble prices are now running into the buzz saw of reality.
  • Corporate profits as percent of GDP – how much profit companies can wring out of the economy by, among other strategies, keeping real wages down – has hit all-time highs for two years in a row.
  • Ha, and don’t even mention Money Supply, which has rocketed into the stratosphere.
  • Not to speak of stock market indices bumbling from one all-time high to the next without a 10% correction in years, while corporations borrowed crazy sums and bought back record amounts of their own shares, to where in Q1, according to CapitalIQ, they’ve become the most prolific buyer of stocks.
  • 15--A Look at Six U.S. Cities Pioneering New Economic Zones (Lake Union?) WSJ

  • "Innovation districts"?
15---Japanese Bond Futures Volume Collapses To Zero Even As Service Sector Implodes, zero hedge

This is not the first time as Mizuho warned in Nov 2013 that "to all intents and purposes, there is no JGB market." And this lack of trading on a day when major macro data printed far worse than expected... well played Abe... you entirely broke your bond market.
As Bloomberg reports, 10yr cash bond and 20-year bond futures were untraded in themorning session (Japan’s benchmark 10-yr note had no trade all day on April 14; that was the first time since Dec. 2000)

“The JGB market is dead with only the BOJ driving bond prices,” said Tetsuya Miura, the chief bond strategist at Tokyo-based Mizuho, one of the 23 primary dealers obliged to bid at government auctions. “These low yields are responsible for the lack of fiscal reform in the face of Japan’s worsening finances. Policy makers think they can keep borrowing without problems.”

 "The BOJ’s priority is to lower Japan’s real interest rates and ensure an end to deflation, even if they have to sacrifice liquidity and trading volumes in the bond market,”

 “Market functions are sacrificed for the sake of ending deflation,” said Izuru Kato, the Tokyo-based president of Totan, a research unit of money-market broker Tokyo Tanshi Co. A reduction in monetary stimulus could cause a drop in bond prices, which “will make it difficult for the BOJ to normalize policy,” he said.

 "Liquidity has evaporated as the BOJ has gobbled up most of the market,” Nicholas Spiro, the London-based managing director of Spiro Sovereign Strategy, wrote in an e-mail. “To all intents and purposes, there is no JGB market.”

16---Are Treasury yields headed for Japanese levels?, cnbc

"Let's say you're sitting on a billion dollars that you don't want to risk for a pension fund or an endowment and your choices are sticking it in a bank or sticking it into bonds," he said. "U.S. bonds, I think, don't create an awful lot more risk than your average bank. So to take 2.5 percent right now versus virtually zero I think is a very good trade."

While many analysts have called for U.S. Treasury yields to rise in the wake of the U.S. Federal Reserve tapering its asset purchases, yields instead declined, with the 10-year touching an 11-month low of 2.44 percent last month, well off highs of around 3.0 percent touched in early January. In Asia trading Monday, the yield was at 2.61 percent.
It's well above the 10-year JGB yield, which has been stuck under 0.65 percent since January and hasn't traded over 1 percent since the middle of 2012. The picture isn't much different in Germany, where the 10 -year yield is around 1.36 percent and hasn't traded above 2 percent since September.

But there may be another obstacle to U.S. Treasury yields dropping around 2 percentage points to match JGBs: they've simply never been that low before.
U.S. Treasurys' absolute lowest yield in the midst of the Federal Reserve's latest incarnation of quantitative easing --which it is currently in the process of tapering -- was around 1.5 percent, Matthews noted

17---This is what is keeping bond yields low, cnbc

Bond yields have stymied widespread expectations they would rise this year and analysts seeking a reason may not need to dig any deeper than simple supply and demand.
(UPDATE: On Wednesday, Treasury yields dropped to 2014 lows).
"On the supply side, bond issuance plummeted, down 19 percent year-to-date. Amidst short supply, a surge in positioning and bond inflows has pushed yields lower," Deutsche Bank said in a note last week.
It noted U.S. Treasury net issuance is around $123 billion year-to-date, down 59 percent from a year earlier, while net issuance of corporate paper and mortgage backed securities has also fallen.

18---Ukraine insists on pre-conflict price of Russian gas, Itar Tass

19---Driving wages into the ground--Government to set up headquarters to coordinate foreign worker pool, JT
The government plans to set up a headquarters within the Cabinet to work out measures by the end of fiscal 2015 for accepting more foreign workers in Japan, according to a draft schedule for Prime Minister Shinzo Abe’s new growth strategy.
The growth strategy to be compiled later this month eyes laying out necessary rules to allow foreigners to engage in broader types of jobs in sectors such as nursing care and in longer periods, the draft obtained by Kyodo News showed.
A midterm strategy on the issue for fiscal 2016 and beyond will be decided through discussions among relevant ministries, the draft says.
As a first step, foreign workers will be allowed to work as housekeepers this year in the newly created “strategic special zones” which promote deregulations and tax breaks...

The draft also envisions legislation within this year to promote the use of private-sector funds for infrastructure development.
The Tokyo Stock Exchange is considering establishing a market by the end of fiscal 2015 to list venture funds that will invest in infrastructure projects such as airports, ports and facilities for renewable energy.
Among other goals, the draft aims to quadruple the number of agribusiness companies based on 2010 figures to 50,000 by 2023. Japan aims to beef up the competitiveness of its agriculture ahead of tariff cuts for farm products under the ongoing Trans-Pacific Partnership trade talks.

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