Sunday, July 6, 2014

Today's links

1---A deepening global economic and financial breakdown, wsws


Since 2009, share markets have steadily risen. They have surged to new record highs over the past year, while the global economy has experienced the lowest rate of “recovery” in the post-World War II period. The euro zone has yet to reach the level of economic output achieved in 2007.


The underlying disaster is even more evident when trend figures are considered. In the United States, where the economy underwent a 2.9 percent contraction in the first quarter of this year, the level of output is 12.5 percent below where it would have been had the pre-crisis trend continued. In Britain, the corresponding figure is 18.5 percent, while for Spain, one of the European countries hardest hit by the financial crisis, the figure is 29 percent.


Even after allowing for the fact that the pre-crisis trend could not have continued indefinitely, and applying what it called more “sophisticated statistical measures,” the BIS found that, on average, the post-crisis shortfall in the advanced economies was between 7.5 and 10 percent. It ruled out any return to higher growth rates, stating that “the prospects for restoring trend growth are not bright.” It pointed to falling productivity trends in the advanced economies and a lack of investment due to weak demand.


While the real economy stagnates, financial markets are positively euphoric. The BIS noted that Wall Street’s S&P 500 index gained almost 20 percent in the 12 months to May 2014, whereas expected future earnings grew by less than 8 percent over the same period. The price/earnings ratio for the index stood at 25 in May, six points higher than its average over the previous 50 years.


The disparity is the outcome of the program of “quantitative easing”—essentially, the wholesale printing of money—spearheaded by the US Federal Reserve as well as the Bank of England and the Bank of Japan. Even where they have not adopted the same policy, other central banks in countries such as Australia, Canada and the Nordic region have been forced to lower their interest rates, leading to a boom on share markets.


The outcome of the “extraordinary policy ease” has been a massive expansion of central bank assets. After growing rapidly in 2007, “they have more than doubled since then, to an unprecedented total of more than $20 trillion (more than 30 percent of global GDP).

As a result, all the parasitic and outright criminal practices that led to the 2008 collapse are making a return. “Deal frenzy, animal spirits, merger mania—call it what you like, it is back,” the Financial Times noted in an article published earlier this week on the 75 percent rise in the value of global merger and acquisitions in the first six months of this year. Merger and acquisition finance hit $1.75 trillion and is now at its highest level since 2007.


Another article in the same newspaper stated that US firms were “adding record debt through mergers and acquisitions and share buybacks,” and that “to keep up with competition conservative asset managers are throwing in the towel and buying riskier products.”
According to a recent article published by the New York Times, in home loan markets, “subprime” is fading as a “dirty word.” While the level of subprime lending is not sufficiently large to enable loans to be bundled into securities for sale to investors, as took place in the period leading up to the crash of 2007–2008, “lenders say it is only a matter of time before the market for subprime mortgage-backed securities rebounds.”


2--Do Teachers' Unions Have Any Friends in the Obama Administration?, Diane Ravitch


3--The impending collapse, The Burning Platform


This entire Deep State hierarchy has been developed over decades, as they have flawlessly implemented Edward Bernays teachings from the Propaganda playbook.


“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. …In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.” – Edward Bernays – Propaganda – 1928


Federal Reserve Chair Janet Yellen said concerns about financial stability shouldn’t prompt a change in current monetary policy while flagging “pockets of increased risk-taking” in the financial system.
Yellen delivered a comprehensive salvo in the global debate among central bankers over whether interest rates should be a first-order tool to curb financial excess, saying supervision should be “the main line of defense” against turmoil.


“Monetary policy faces significant limitations as a tool to promote financial stability,” Yellen said yesterday at the International Monetary Fund in Washington. “Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach.” ...


Stein in a 2013 speech favored keeping “an open mind” on using monetary policy to control asset-price bubbles. Shifting interest rates “gets in all of the cracks” of the financial system while the Fed’s regulatory reach only extends to banks, he said. ...


“Stein is concerned in the here and now that monetary policy is already affecting financial stability,” Berger said. “Yellen’s view is she sees pockets of risk taking but nothing yet that’s raising serious alarm bells, and if it does then regulatory tools are the best way to tackle it.”


5---The Bank of Japan's QE program diverges sharply from other central banks , sober look
Many investors seem unaware of just how large Japan's QE program has been relative to other central banks. While the Fed, the ECB, and the BOE have roughly converged to the same level (as a proportion of their GDP), the Bank of Japan's balance sheet is more than double that of its counterparts abroad.
Source: BIS
But while we've seen small improvements in bank lending, credit growth in Japan remains tepid.


The primary reason for this trend has to do with the lack of demand for credit. Both households and companies are loathe to take on debt. One can't blame them of course - taking on fixed liabilities with looming risks of deflation is dangerous (imagine watching your assets depreciate, while liabilities remain fixed.) And as we saw in the US (see chart), other than during periods of frozen credit markets, quantitative easing has not been shown to be very effective in stimulating credit expansion.

6---Reasons for the spike in M&A activity, sober look

7---Window dressing with the Fed's reverse repo program, sober look 
If you are a bank or even a money market fund, you probably want your financials to show the maximum amount of your overnight liquidity placed with the Fed's RRP rather than with other banks. Your balance sheet looks less "risky" this way. And since most financial reporting is done at quarter end (with mid-year and year-end being the most important dates), you want to place your cash with the Fed on the last day of the quarter for one night and then take it out. And that’s exactly what’s taking place currently.


 8---Voodoo Abenomics, CFR

...Eighty percent of Japanese polled say that his policies have failed to improve their lives at all....

Today, 17 percent of Japanese men aged 25 to 34 hold such second-class jobs, up from four percent in 1988. Low-paid temps and part-timers now make up 38 percent of Japanese employees of all ages and both sexes -- a stunning figure for a society that once prided itself on equality.

9--A telling incident: MSNBC’s Chris Matthews’ exchange with Sen. Elizabeth Warren, wsws

10--The Game We Know is Over – A New Game About to Begin, Trim Tabs

Now in 2014, oil prices are maintaining recession inducing levels, rates are still zero, deficits and QE are large but less than half their peak, and not surprisingly GDP is slipping…another negative quarter and US is officially in recession.  Typically, this is where the Federal Reserve would begin looking to the next cycle of lower rates and increased Federal deficit spending to accelerate GDP and economic activity to shorten the next recession. - ...

Mrs. Yellen and the Federal Reserve are suggesting GDP “growth” can continue without Budget deficits and QE???  But even more correctly, the Federal Reserve is suggesting the economy can not only thrive in the absence of an “accommodative” Federal Reserve but in the midst of anti-stimulus while rates are raised and Fed’s balance sheet shrunk?

11--Fed must not linger too long on QE exit, Henny Sender, FT
with growth down almost 3 per cent for the first quarter, GDP for the first half will probably be close to zero. Corporate investment in anything other than share buybacks is minimal. Indeed, the Fed policies give companies every incentive to indulge in share buybacks rather than investing in plant and equipment, let alone in hiring.

“The brute macro forces that are driving global markets this year are low growth, easy money and low volatility,” noted Jan Loeys. “This trio is a substantial boost for broad asset price inflation. Given the reduced ability of banks to use their balance sheet to buy risk assets during a fire sale, there is now a higher risk that when the Fed starts hiking in earnest, outflows from high yielding and less liquid debt will lead to a free fall in prices.”

12--Ukraine's prime minister suggests bringing Europe, US companies to co-manage its gas pipeline, US News
Russia has for years sought unsuccessfully to buy Ukraine's pipeline, which is owned by a state company.
Moscow on Thursday said it wants to be consulted on any decisions affecting the pipeline's management. But it has no powers to stop Ukraine from selling the pipeline or bringing in foreign companies to manage it.


Yatsenyuk said that foreign investment in the Ukrainian gas transport system would undermine support for South Stream, a pipeline system backed by Russia that could ship gas to Europe by avoiding Ukraine.
"This will make it possible to stop the construction of South Stream and send the entire volume through the Ukrainian gas transport system, since the EU member countries will, first of all, have an interest in this," Yatsenyuk was quoted as saying by the Interfax news agency


13--UBS: The Secret Reason The Fed Is ‘Tolerating’ Bubbles , wolf street


So in this environment of pandemic central-bank bubble-denials, UBS writes that “policymakers around the world are struggling with potential asset bubbles” that are “a logical and inevitable consequence of historically unprecedented monetary policies.”
It took nearly six years to figure this out? The report goes on:
Asset prices have indeed in many cases reached stunning levels, quite obviously out of line with ‘fundamentals,’ for example in credit or government bond markets. The most dangerous of bubbles are deemed to be those in housing markets as their bursting could wreck whole economies.


14--Fewer Americans Think the U.S. the Greatest, US News
The percentage of Americans that think the U.S. 'stands above all other countries in the world' has fallen, particularly among young people and Republicans.


Most Americans think the United States is one of the greatest countries in the world. Fewer of them, however, think the U.S. is superior, according to Pew Research Center.
Since 2011, there has been a 26 percent decrease in the number of Americans willing to call the USA the greatest -- now about one-fourth of Americans.


15--Seven Obama Lies About The Ukrainian Civil War , David Stockman


16---Ukrainian pipeline; 49% foreign owned?, The Day


“What does the government suggest?” Yatseniuk asked the law-makers. “According to our obligations within the Energy Charter and as a member of the European Energy Community we have to make a number of decisions that will create a new mo­del of functioning of the energy market.” Prime Minister explained that the draft law suggested by the government provides preserv­ing the gas transportation system including the pipes and storages in the property of the state and creation of an operating company; the controlling share will also be owned by the state and a share of 49 percent can be sold to European and American gas transportation companies that have necessary certificates.

Prime Minister assured that the implementation of the project will allow not only modernizing the Ukrainian gas transportation system and increasing its capitalization, but resisting the construction of the bypass pipe­lines. “It gives a possibility to stop the construction of the South Stream and direct all the gas through the Ukrainian gas transportation system since the EU members will be especially inte­rested in it,” Yatseniuk believes. The draft law removes restrictions on renting the main gas pipelines and underground sto­rages by enterprises on a paid basis without the right to convey them in order to operate the gas transportation system and under­­ground gas storages.


17---Ukraine makes first step to let EU, US co-manage national gas pipes, going global (blocking southstream)



The Ukrainian parliament has passed the first reading of a bill allowing western companies to own up to 49 percent of the national gas transportation system (GTS), which is currently totally owned by Naftogaz Ukraine.

The 229 - 221 Friday vote means a foreign operator will be able to manage, be licensed to operate, or lease Ukraine’s gas pipelines or its underground storage, RIA reports.

On top of that, the Ukrainian government can set up a separate operator for the underground gas storage, where US and European companies could also get a 49 percent stake. 

Prime Minister Arseniy Yatsenyuk, who proposed the bill, said it was a part of a bigger initiative to modernize Ukraine’s GTS and also strengthen Ukraine’s position as a transit country. 

“Those who want to turn Ukraine’s pipes into scrap, play along with Russia in construction of South Stream, those don’t vote for the bill,” Yatsenyuk said on Thursday when the bill was first turned down. 

On Friday, Ukraine’s Rada also passed a bill to let the Cabinet of Ministers introduce special provisions in its fuel and energy sector for times of limited energy supplies in the country. 

To become a law, these bills need to pass through two more hearings in the Rada, as well as require a signature of President Petro Poroshenko



18---Pipeline politics taint U.S. war, Chicago trib


He wrote that the U.S. oil company Unocal Corp. had been negotiating with the Taliban since 1995 to build "oil and gas pipelines from Turkmenistan, through Afghanistan and into Pakistani ports on the Arabian sea." He cited Ahmed Rashid's authoritative book "Taliban, Militant Islam, Oil and Fundamentalism in Central Asia" as a source for this information.


Rashid, who has reported on Afghan wars for more than 20 years as a correspondent for the Eastern Economic Review and the Daily Telegraph, carefully documents in his book how the U.S. and Pakistan helped install the Taliban in hopes of bringing stability to the war-ravaged region and making it safer for the pipeline project. Unocal pulled out of the deal after the 1998 terrorist attacks on U.S. embassies in Kenya and Tanzania were linked to terrorists based in Afghanistan.
"The war against terrorism is a fraud," exclaimed John Pilger in an Oct. 29 commentary in the British-based Mirror. Pilger, the publication's former chief foreign correspondent, wrote, "Bush's concealed agenda is to exploit the oil and gas reserves in the Caspian basin, the greatest source of untapped fossil fuel on earth."


These harsh assessments are not just those of embittered ideologues. They are common fare. "Just as the Gulf War in 1991 was about oil, the new conflict in South and Central Asia is no less about access to the region's abundant petroleum resources," writes Ranjit Devraj in the Hong Kong-based Asia Times, a business-oriented publication.
A popular French book titled "Bin Laden, the Forbidden Truth," which alleges that the Bush administration blocked investigations of Osama bin Laden while it bargained for him with the Taliban in exchange for political recognition and economic aid, is guiding much of the recent European coverage.


19--The Pipeline That Could Keep the Peace in Afghanistan, WSJ (Blocking Iran)
As the U.S. leaves Afghans on their own, the gas project might help stabilize the region.


Now the silence from Washington has ended. Earlier this month, President Obama sent a letter to President Berdimuhamedow emphasizing a common interest in helping develop Afghanistan and expressing Mr. Obama's support for TAPI and his desire for a major U.S. firm to construct it.
There remains a lot of distance between a general declaration of support and a deal to build TAPI. A framework agreement between the two countries is urgently needed that covers gas and oil issues. This, too, must be signed by both presidents, and not, on the American side, by some lower official.

Washington cannot wait another five years for further action on TAPI. After the U.S. military withdrawal next year, the government of Afghanistan will have few legitimate income streams. TAPI can provide Kabul with hundreds of millions of dollars annually and create an estimated 50,000 jobs for Afghans. It will do so in a way that gives three of the key states in the region—Pakistan, India and Iran—a strategic interest in Afghanistan's success. Progress on TAPI will also jump-start many of the other trans-Afghan transport projects—including roads and railroads—that are at the heart of America's "New Silk Road Strategy" for the Afghan economy.
The White House should understand that if TAPI isn't built, neither U.S. nor U.N. sanctions will prevent Pakistan from building a pipeline from Iran.

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