Wednesday, June 4, 2014

Today's links

1---US attempts to shut off Russian gas to EU, RT

In the Financial Times editorial dated April 21, Tusk called for measures to tackle Russia's monopoly in gas supplies to EU.
“Europe should confront Russia’s monopolistic position with a single European body charged with buying its gas,” Tusk wrote, adding, “I therefore propose an energy union.”
Russia is set to provide roughly 30 percent of growing European natural-gas demand by 2020. Even by conservative estimates, Europe by 2025 will require an additional 170 billion cubic meters of gas, and by 2035, Medvedev said that figure might constitute 225 billion cubic meters, creating an urgency for the investors to address the growing European demand for Russian gas
As far as the EU calls for the South Stream project to be halted, Gazprom says it is ready for the worst case scenario and can complete the project without outside investment.
“If you ask me if I’m ready for the worst case scenario, I'd say 'Yes, we are ready," Medvedev told journalists in Moscow.
Medvedev also said that US efforts to stop Russian energy supplies to Europe to increase American market share in the region are “impossible.”
“We understand that the US, sitting high on a hill and independent of economic cooperation with us, is pushing Europe to take wild steps,” Medvedev said. “I think that logic of European business cooperation won’t allow dementia to set in. Russian export restrictions are impossible.”

2---Plot to kill Maduro: Venezuela demands US explain role in assassination plan, RT

Venezuelan President Nicolas Maduro has alleged US involvement in a plot to oust his government and assassinate him. The South American leader said there are hundreds of emails that prove members of the State Department were part of the conspiracy

3---Kiev's ‘indiscriminate shelling of residential areas’ must be stopped – Russia, RT

4---Unstoppable $100 Trillion Bond Market Renders Models Useless, Bloomberg

Forced Buying

“Everyone is short and they are forced to cover,” Misra said by telephone on May 28.
While economists and strategists have reduced their yield forecasts, they’re still sticking to the view borrowing costs will end the year higher as the economy gains momentum.
They now see yields on 10-year Treasuries rising to 3.25 percent by year-end as the economy accelerates 3.1 percent in 2015, estimates compiled by Bloomberg show. At the start of the year, the median yield forecast was 3.44 percent.
Investors risk becoming lulled into complacency by six years of near-zero U.S. interest rates at a time when yields are so low, according to Zach Pandl, the Minneapolis-based senior interest-rate strategist at Columbia Management Investment Advisers, which oversees $340 billion.
Pandl, who developed his own version of the term premium, maintains that U.S. government bonds are too expensive.
“The Treasury market is overvalued,” he said by telephone on May 28. “The funds rate has been at zero for so long so it becomes difficult to envision it being higher at all. Monetary policy is closer to exit.”

Biggest Mistake

Traditional models are failing to explain the resilience of fixed-income assets as central banks led by the Fed pump trillions of dollars into their economies and suppress short-term rates at historical lows, according to Bianco.
The Fed, Bank of Japan and Bank of England all have quantitative-easing programs in place, while at least two dozen nations have dropped benchmark rates to 1 percent or less.
“The biggest mistake for people is they think interest rates are merely a projection of where the economy is supposed to go,” Bianco said. “It’s the Fed and the way they have changed the marketplace.” He foresees that yields on 10-year notes will end the year at 2 percent to 2.5 percent

5---Bundling junk, Bloomberg

The business of bundling junk-rated corporate loans into top-rated securities is booming like never before after the implementation of regulation aimed at making the financial system safer.
More than $46 billion of collateralized loan obligations have been raised this year in the U.S. through the end of May, after $82 billion were sold in all of 2013, according to Royal Bank of Scotland Group Plc. JPMorgan Chase & Co. boosted its annual forecast to as much as $100 billion, which means 2014 may end up as the biggest year on record, while Onex Corp. said yesterday it will expand its CLO business.

Issuance of CLOs, which helped finance some of the biggest leveraged buyouts in history during the last credit boom, has picked up following an early 2014 slump brought on by the publication of the Volcker Rule designed to limit risk-taking by banks -- major buyers of the funds. CLOs are investors in speculative-grade loans, an asset class in which U.S. banking regulators have said underwriting standards have become too lax.

6---1 in 5 Children Live in Poverty in U.S., CBS

7---Fed Officials Growing Wary of Market Complacency, wsj
Expectations for Rate Hikes Might Be Out of Line With Fed's,

8---Is it a crash yet? Daily Bell

9---Pot-infused coffee makes debut in Washington state, RT

The coffee drinks give you an uplifting head high. We call it the wake and bake drink,” he said. “We want the experience to be more similar to that if you had a nice IPA or glass of wine. We don’t want to pack so much THC into every one of our drinks that it’s unpleasant, especially for people that are just getting into marijuana.”
Drinking this coffee is like riding a cool avalanche of pure deliciousness down a tall mountain and landing in an ocean of good feelings,” the website advertises. “You’ll swim off into a day of work or play filled to the brim with pure joy.”

10--Abe plans to cut corporate taxes despite historic debt, JT

11--NATO escalation, Pravda

The most discussed issue will be the defense of the allies on the eastern front in connection with the situation in Ukraine. The alliance has already enhanced air patrols of the Baltic countries, deployed ships in the Baltic and Black Seas, reinforced contingent in Poland and the Baltic countries and conducted military exercises in the region with the participation of six thousand troops, RIA Novosti reports.

"We consider it in the headquarters, whether it is enough, as several allies are worried about their security and the security of NATO. We already have plans for larger, more visible drills, we strive to improve threat-preventive procedures and crisis response plans. We are revising the abilities of NATO Response Forces, so that they could respond to any threat," a spokesperson for the alliance told reporters, commenting on the expectations of the ministerial meeting.

12---Thoughts on the Mysterious Low Volatility of the Capital Markets, zero hedge

13--Bilderberg on Ukraine: military chiefs, arms bosses and billionaire speculators, Guardian

A gathering of those who stand to make a killing out of knowing where and when the bombs might fall, how many and on whom..

People who stand to make a killing out of knowing where and when the bombs are going to fall, how many and on whom.

The KKR Global Institute prides itself on "knowing how to respond to emerging geopolitical and macro-economic trends", which enables "smart investing, portfolio management, and risk mitigation", in other words getting the inside tip. And once you're inside Bilderberg, you're hearing "emerging geopolitical and macro-economic trends" right from the secretary general of Nato's mouth. Very profitable, I'm sure.

The Russian Ministry of Foreign Affairs draw attention to the audio recording of a conversation between EU High Representative for Foreign and Security Policy Catherine Ashton and Estonian Foreign Minister Urmas Paet about the situation in Ukraine, which surfaced on the internet. A source in the diplomatic service said this on Wednesday.

“We drew attention to the recordings that emerged on the internet,” the source told Itar-Tass. “EU’s refusal to comment them cause surprise since recently high-ranking officials of EU countries actively commented on Victoria Nuland’s wiretapping.”
Earlier, on Russian Foreign Ministry’s Facebook page was published a remark on media reports: “It turns out the European Union knows that the opposition stood behind the snipers on Maidan!”

By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In  particular, by 2008, foreign purchases of US Treasuries are estimated to have had cumulatively reduced long term real yields by around 80 basis points. The subsequent total impact of Fed purchases in 2008-2012 has been even larger: the quantitative easing (QE) has depressed real 10-year yields by around 140 basis points. Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium. ...

We find that the Fed’s asset purchase programs have been effective. In particular, we estimate that in the absence of Fed purchases, the 10-year real yields would have been up to 140 basis  points higher. Foreign official investors have pushed US rates down by around 80 basis points, and their impact has not changed significantly in the aftermath of the crisis. Our findings also reveal that the Fed policy interventions and foreign official purchases affected real bonds mostly through the bond premium channels

16---Real Economy Bites Housing Bubble 2 , Testosterone Pit

From January 2012 to April 2014, the median price of existing homes soared 30% and over the same period, the median price of new homes jumped 24%. In February 2013, new homes set new all-time highs, beating the prior peak-of-the-bubble price set in March 2007. And in many cities, including San Francisco, the median price of existing homes has already shot past prior bubble highs....

What hasn’t jumped? Incomes. According to Sentier Research, which uses data from the monthly Current Population Survey, median household income, adjusted for inflation, in April was $52,959 – 4.2% lower than at the official end of the Great Recession in June 2009, 5.9% lower than in December 2007 before the bottom fell out, and 7.0% lower than in January 2000......

In order to stay current on their rent or mortgage, 52% of all adults in America over the last three years had to do at least one of these things: take an additional job or work more hours; stop saving for retirement, pile up credit card debt, cut back on healthy foods, or slash health-care spending.
For these people – over half of the adult population! – housing costs consume a disproportionate part of their incomes. They’re barely scraping by: 47% of the homeowners and 56% of the renters reported that their housing situation wasn’t “stable and secure

17---Is the cycle of boom and bust in California real estate truly over?, oc housing

The difference today is that lenders must now deal with the Dodd-Frank restrictions of qualified mortgage rules and the ability-to-repay rules. These two rules effectively ban the toxic mortgage products used in the past to make unaffordable house prices temporarily affordable. So what happens when prices get too high and toxic mortgage products are unavailable? Home sales volumes crumble. Combine that with a pullback of institutional buying, and you end up with sales volumes well below last year’s below-average levels.
Over the last week as I thought about this outcome, I began to question whether or not the legislators who passed the Dodd-Frank financial reform would succeed in preventing future housing bubbles. Back in January of 2013 I wrote that the new mortgage regulations will prevent future housing bubbles, and I recently wrote that new mortgage regulations change how real estate markets work. Based on the recent evidence — declining sales caused by higher prices — I am becoming more hopeful that we really and truly are witnessing the end to the cycles of boom and bust in California real estate...

Even for people with a lot of equity, just having a mortgage makes them feel more insecure than they did five or 10 years ago,” Zavisca said. With a mortgage now comes heightened anxiety.
18--(archive april 2014) Weak bank lending thwarting growth in US, cnbc

In the twelve months to January, the lending of U.S. banks to households increased about 3 percent while, over that period, their loanable funds (excess reserves) soared by an incredible 59.4 percent.
Clearly, massive monthly asset purchases by the U.S. Federal Reserve (Fed) were of no great help. The banks' near retreat from their core business (consumer financing), along with sluggish income growth and a large slack in labor markets, weakened all the key pillars of private consumption.
Is it any wonder, then, that the inflation adjusted consumer spending – 70 percent of the U.S. economy – was growing at a rate of 2.2 percent in the first two months of this year, after a lackluster 1.9 percent growth during 2013?

Why are U.S. banks shunning their core business?
The void left by the weak bank lending to consumers has been filled by nonbank financial institutions (finance companies, credit unions, etc.). Lending to households by these companies rose a whopping 9 percent in the year to January, and was 47 percent higher than the amount of consumer loans booked by commercial banks. ...

The Fed's balance sheet expanded $168.4 billion in the first quarter (compared with $230.6 billion in the last three months of 2013), putting America's high-powered money at $3.9 trillion and 32.4 percent above its year earlier level. That is fueling equity markets and lowering the cost of government funding. But in spite of the banks' $2.5 trillion in excess reserves, their lending to households remains too weak to support faster growth of demand and employment

19--Fascist propaganda on the front page of the Frankfurter Allgemeine Zeitung, wsws

In Ukraine, the foundations associated with all the main German parties, from the Greens to the Social Democrats and the Christian Democrats, are working with political forces that glorify war criminals and Nazi collaborators like Stepan Bandera.
Behind this turn to the right is the dead end of German capitalism. Six years after the outbreak of the deepest financial crisis since the 1930s, the European Union is threatening to break apart, and competition for markets and raw materials, upon which the German economy depends, is fiercer than ever.
This is the source of the determination of the German ruling elite to abandon the military restraint it was forced to observe following the crimes of the Second World War and pursue its imperialist interests violently once again.

20--Obama escalates NATO confrontation with Russia, wsws

In a joint statement, Grushko and Sergei Shoigu, Russia’s defense minister, called NATO’s ongoing buildup near Russia’s borders “unprecedented and excessive.” They warned, “NATO should realize that, if it embarks on that path, it can hardly expect Russia to reciprocate with ‘restraint’ in deployments of force.”
In the context of the escalating tensions provoked by Washington in both eastern Europe and the Asia-Pacific region, the Reuters news agency published an ominous article Tuesday entitled “West ponders how to stop—or fight—a new Great War.”

“After more than a decade focused on combating Islamist militancy, Western military planners are once again contemplating potential war between major powers,” the article began.
It cites Obama’s warning in his foreign policy speech at West Point last week that “Regional aggression that goes unchecked, whether in southern Ukraine or the South China Sea or anywhere else in the world, will ultimately impact our allies and could draw in our military.”
The article adds, “One hundred years after the start of World War One, books on the period have become increasingly popular in Washington, Whitehall and NATO headquarters in Brussels, current and former officials say, and not purely for their historical interest.”

It continues: “As in 1914, no one really knows what a modern great war would be like. While much military thinking assumes conflict would remain conventional, nuclear powers have kept their atomic war planning up to date, maintaining target lists for mutually assured destruction, current and former officials say.”
It quotes an unnamed senior Western official as stating: “We are in uncharted territory. It means…reconstituting high end fighting skills and properly thought out doctrine for both conventional and nuclear deterrence.”

This is only one of the more bloody actions in a growing number of atrocities, as the Ukrainian regime has unleashed warplanes, heavy artillery, mortar fire and assaults by thugs of the fascist Right Sector against the population in the east. Schools, hospitals and residential areas have all been severely damaged by indiscriminate bombardment directed at terrorizing entire regions where opposition to the regime installed by the US-backed and fascist-led coup last February has only increased since the May 25 election of the billionaire oligarch Poroshenko.
The funding is intended to pay for a constant rotation into the region of US land, air and ground forces. This has already begun, with the deployment of a detachment of 18 US F-16 fighter planes, which Obama visited on Tuesday, as well as some 600 US paratroopers, who have been sent into Poland and the former Soviet Baltic republics of Estonia, Latvia and Lithuania....

Dubbed the European Reassurance Initiative, this stepped-up aid is to be accompanied, according to a White House statement, with a review of US “force presence in Europe in the light of the new security challenges on the continent.” The statement further vowed that a military buildup in eastern Europe would “not come at the expense of other defense priorities, such as our commitment to the Asia Pacific rebalance.”
In other words, the Obama administration is embarking on a reckless drive to encircle and militarily intimidate Russia and China simultaneously

21---The current breakdown of neoliberal globalized market fundamentalism, Henry CK Liu

The current breakdown of neoliberal globalized market fundamentalism offers Asia a timely opportunity to forge a fairer deal in its economic relation with the rest of the world. The United States, as a bicoastal nation, must begin to treat Asian-Pacific nations as equal members of an Asian-Pacific commonwealth in a new world economic order that renders economic nationalism unnecessary.
China, as the largest economy in the Asia-Pacific region, and potentially the largest in the world, has a key role to play in shaping this new world economic order. To do that, China must look beyond its current myopic effort to join a collapsing global export market economy and provide a model of national development in which foreign trade is reassigned to its proper place in the economy from its current all-consuming priority. The first step in that direction is for China to free itself from dollar hegemony and embark on a domestic development program with sovereign credit.

Yet neoliberals policy makers in developing economies continue to ignore the insights of Friedrich List on the limitation of international trade as a venue for national development, thus denying their domestic economy the benefits of using sovereign credit instead of foreign capital. (Please see my September 2004 series: Liberating Sovereign Credit for Domestic Development - written three years before the global  market meltdown in July 2007)
China is not a “revisionist” power, but a non-expansionist revolutionary state aiming at restoring its natural historical status before the arrival of Western imperialism in Asia. China is not interested in bringing back a pre-WWII world order of imperialist exploitative expansion. China is not Japan who as a defeated nation has been willing to play the role of a submissive ally with a benevolent victor.            

Brzezinski’s statement aims at preserving US dominance in an existing world order that is facing fast and fundamental changes by drawing China into regions previously laid beyond a weak modern China’s sphere of influence. If adopted by the Obama administration, a likely possibility as US foreign policy of the past three decades reflects an increasing acceptance of a scenario of a future world described in Brzezinski’s 1997 book, written six years after the dissolution of the Soviet Union in 1991, The Grand Chessboard: American Primacy And Its Geostrategic Imperatives: “A geostrategic issue of crucial importance is posed by China’s emergence as a major power.” (page 54) “China’s growing economic presence in the region [Central Asia] and its political stake in the area’s independence are also congruent with America’s interests.” (p.149) “Potentially, the most dangerous scenario [for the US] would be a grand coalition of China, Russia, and perhaps Iran, an ‘anti-hegemonic’ coalition united not by ideology but by complementary grievances.”

Brzezinski, the grand master of geopolitical chess, plots his strategy several moves ahead of the game. Geopolitical pluralism must first be promoted to defuse challenges to US superpower, followed by encouraging compatible key partners to cooperate under US leadership, and finally the pragmatic sharing of global geopolitical responsibility can be rewarded with a sharing of power. The twin poles of this strategy are a united Europe in the West and strong China in the East; with the problematic central regions stabilized within a new balance of power.  
With the idea of forming a G-2, Brzezinski concedes that the days are numbered for a unipolar world order dominated by a single superpower that had emerged since the dissolution of the Soviet Union in 1991. The US, in view of the self-inflicted damage to its freewheeling market economy that can be expected to leave the US in a protracted depression, will need a trade partner with high growth potential to absorb its overcapacity. China emerges in the 21st century as the ideal candidate for the new ally with a special relationship with the US. From the US security perspective, an alliance with China will spare the US from again involve directly in a war in Asia, a role the US alliance with Japan had repeatedly failed to accomplish. From the US economic perspective, US-China economic interdependence has the potential of a win-win symbiosis.    
Nazism and the German Economic Miracle,” Henry C. K. Liu, Asia Times

Under dollar hegemony, export to US markets is merely an arrangement in which the exporting economies, in order to earn dollars to buy needed commodities denominated in dollars and to service dollar loans and  direct investments, are forced to finance the US consumption beyond the level supported by US wages, and by the need to invest their trade surplus dollars in dollar assets as foreign-exchange reserves, giving the US a rising capital account surplus to finance its rising current account deficit.
Furthermore, the trade surpluses are achieved not by any advantage in the terms of trade, but by sheer self-denial of basic domestic needs and critical imports necessary for domestic development. Not only are the exporting nations debasing the market value of their labor and the exchange value of their currencies, degrading their environment and depleting their natural resources for the privilege of running on the poverty treadmill, they are enriching the dollar economy and strengthening dollar hegemony in the process, and causing harm also to the US economy.

Thus the exporting nations allow themselves to be robbed of needed capital for critical domestic development in such vital areas as education, health and other social infrastructure, by assuming heavy debt denominated in foreign currencies to finance export, while they beg for even more foreign investment in the export sector by offering still more exorbitant returns, lower wages and generous tax exemptions, putting increased social burden on the underdeveloped domestic economy. Yet many small economies around the world have no option but to continue to serve dollar hegemony like a drug addiction by hoping to develop their domestic economies through export

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