Sunday, February 8, 2015

Today's Links

These concessions were not just about paying off debt but also “structural reforms” that sought to remake the European welfare state in the weaker countries, including shrinking the size of the state, cutting spending on health care, pensions, and unemployment compensation, and changing labor laws that favored workers" Mark Weisbrot




1--The job market is unquestionably improving, and at a nice clip. But wage growth is not heating up, Jared Bernstein


pc2014q4
Sources: Author’s analysis; see data note below.
There’s a bit of a “Goldilocks” economy afoot right now in the United States. GDP is growing “at trend,” meaning about where we’d expect at this point in an expansion. The job market, as we learned today, is not only consistently posting good monthly numbers, but doing so at an accelerated pace. Over the past three months, employers have boosted their payrolls on net by about 340,000 jobs per month. A year ago, that figure was about 200,000...


Wages/compensation are growing at about 2 percent, a rate that’s far from inflationary. Fed Chair Janet Yellen has herself said that 3.5-4 percent for nominal wage growth would be more consistent with a healthy job market.


2---Only 20% are Middle-Class, Most Don't Come Close, economic populist


3--Gauging the financial crisis end game, credit writedowns


From an investor’s point of view, the good news is that about 80% of all Greek government bonds are now held by the public sector, meaning that any Greek default is unlikely to do serious damage to the investment community.


Even worse than a Greek default is the rhetoric coming from Mr. Tsipras. He has said on more than one occasion that the Syriza party will take back what the rich have stolen from the poor for many years. The last time Greece made a serious attempt to confiscate large fortunes from the seriously wealthy (in the mid-1960s), it resulted in a military coup...




4--Yanis Varoufakis on fiscal waterboarding and Ponzi austerity, credit writedowns


5--The Death Of The Petrodollar Was Finally Noticed, zero hedge


Current account data suggest the GCC has accumulated $2.7tn in net foreign assets since the 1970s1, $2.4tn of which has likely come during the most recent oil boom that started in 2004 ...


Jean-Michel Saliba: We believe the bulk of petrodollars recycled through the financial channel ended, either directly or indirectly, in the deep and liquid US financial markets. ...


Jean-Michel Saliba, Middle East and North Africa economist: GCC oil export earnings totaled roughly US$1.04tn in 2014, for a cumulative US$10.8tn since 1970. These revenues have been recycled through two main channels, the absorption and financial account channels. The former refers to the use of oil export receipts to finance imports of goods and services. Through the second channel, current account surpluses translate into net financial investments in the rest of the world. The split in these flows comes from the sovereign’s intertemporal allocation decision between spending under the absorption channel and saving under the financial account channel. The latter also involves an asset allocation decision....




oil exporters are now pulling liquidity out of financial markets rather than putting money in. ....
: "net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed  global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. The implications for financial markets liquidity - not to mention related downward pressure on US Treasury yields – is negative."....


In our view, OPEC’s decision to give up on its traditional role of keeping supply and demand in check will have far-reaching consequences across all asset classes as the flow of OPEC petrodollars is drying up. In the absence of a quick and sharp rebound in oil prices, this may drain liquidity from global asset markets, at least for the remainder of 2015.......


Alberto Ades: What would be the main implications of the dry-up in petrodollar recycling likely to happen in a lower oil price environment?
Jean-Michel Saliba: Lower oil prices for longer should imply material shifts in the size and direction of petrodollar recycling flows.
....


Alberto Ades: Gustavo, let’s switch away from regional geopolitics and back into global economics and strategy. As petrodollar recycling dries out, will this hit global liquidity conditions?
Gustavo Reis, global economist: Jean-Michel noted petrodollar flows likely ended up in liquid US financial markets; therefore, a consequent effect would be diminished support for US asset prices.


 A more patient Federal Reserve, additional easing by the European Central Bank and Bank of Japan, as well as the decline in long-term global inflation expectations, will likely dominate. This suggests a contained potential impact of petrodollar flows over and above the market gyrations associated with the oil price plunge....


a further drop in oil prices as envisioned by Sabine would probably increase risk aversion and safe haven flows into the UST market.
Alberto Ades: Talk of UST yields and inflation may have implications for Fed action. Mike, could the shift in petrodollar recycling influence the Fed’s monetary policy during 2015?
Michael Hanson, United States economist: Not in my view. For the Fed, the decision on when to begin the tightening cycle will depend on how it assesses the progress toward maximum employment and price stability in the dual mandate. But as the January FOMC statement revealed, financial and international developments will also play a role. If the shedding of US assets by oil-exporting economies results in an appreciable tightening of US financial conditions, the Fed may move later or more gradually in its exit strategy.
* * *
In other words, from irrelevant, to "unambiguously good" if only for those who have zero understanding of what it means, suddenly the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed's exit strategy.
Or said otherwise, we now know why the Fed felt like adding the word "international developments" in its latest statement.


6---Greece Gambles On "Catastrophic Armageddon" For Europe, Warns It "Only Has Weeks Of Cash Left", zero hedge


that Charles Dallara, who as head of the International Institute of Finance (IIF) spent months in Athens negotiating the largest ever sovereign debt restructuring, said that "the damage to the rest of Europe from Greece leaving the euro would be "somewhere between catastrophic and Armageddon."
"I think that it (a Greek exit) is possible, but I wouldn't call it inevitable and I wouldn't even call it likely because the costs for Greece, for Europe and for the global economy are likely each in their own way to be immense."

"The pressures on Spain, Portugal, even Italy and conceivably Ireland could be immense and the need for Europe to step up with much greater support for the banking systems would be substantial."
If that isn't enough here is what Willem Buiter predicted:
As soon as Greece has exited, we expect the markets will focus on the country or countries most likely to exit next from the euro area. Any non-captive/financially sophisticated owner of a deposit account in that country (or in those countries) will withdraw his deposits from banks in countries deemed at risk - even a small risk - of exit.  Any non-captive depositor who fears a non-zero risk of the future introduction of a New Escudo, a New Punt, a New Peseta or a New Lira (to name but the most obvious candidates) would withdraw his deposits from the countries involved at the drop of a hat and deposit them in the handful of countries likely to remain in the euro area no matter what - Germany, Luxembourg, the Netherlands, Austria and Finland.

The funding strike and deposit run out of the periphery euro area member states (defined very broadly), would create financial havoc and mostly like cause a financial crisis followed by a deep recession in the euro area broad periphery.
...
A banking crisis in the euro area and in the EU would most likely result from an exit by Greece from the euro area. The fundamental financial and real economy linkages from the rest of the world to the euro area and the rest of the EU are strong enough to make this a global concern.


7--Greece Could Run Out of Cash in Weeks, WSJ
Request by Athens to Raise an Extra $5 Billion in Short-Term Debt Rejected


8--Middle America is holding on for dear life, marketwatch


The share of Americans who are part of middle-income households has plunged to 51% in 2013 from 61% in 1970, according to new research by the Pew Research Center, a nonpartisan, nonprofit think tank in Washington, D.C. And from 1990 to 2013, the share of adult Caucasians and Asians living in middle-income households decreased the most of any ethnic group, from 58% to 53% (for Caucasians) and from 56% to 50% (for Asians). The decline was less pronounced among Hispanics (from 48% to 47%) and African-Americans (from 47% to 45%).,


9--US BP oil workers join largest nationwide strike in 35 years, RT


10--50,000 casualties in Ukraine: German intel says ‘official figures not credible’, RT


11--Kiev started violence in Jan, RT


The latest escalation of violence started in mid-January after Kiev announced a mass operation against Donetsk airport, in violation of a previous ceasefire agreement. Since then there have been almost daily reports of civilian casualties in the conflict. Five people died in shelling on a hospital in Donetsk on Wednesday. The UN has warned of a looming humanitarian catastrophe in the region.


12--Syriza’s Win is the Beginning of the End for the Eurozone’s Long Nightmare, Mark Weisbrot


the U.S. proved vastly superior to the economic autocracy of the eurozone. Although the Great Recession was our worst downturn since the Great Depression, it lasted just 18 months before the recovery began. The eurozone had a recession of similar length, but then lapsed into another one in 2011 and has only recently begun a sluggish recovery. As a result, unemployment in the region stands at 11.5 percent, more than twice that of the United States (5.6 percent).


The difference is due to economic policy: macroeconomic (fiscal and monetary) policy in particular. We got a modest stimulus; they got budget tightening in the weakest economies of the eurozone. We got the Federal Reserve’s quantitative easing (QE) beginning in 2008; the European Central Bank (ECB) did not announce QE until last week. The people making the macroeconomic policy decisions in the U.S. had at least some – to varying degrees – accountability to an electorate. But in the eurozone, more than 20 governments fell and yet for years the destructive policies decided by the unelected European authorities – the European Commission, the ECB, and the International Monetary Fund (IMF) – marched forward. Perhaps nowhere in the eurozone have these policies failed more miserably than in Greece....


The IMF projects nearly 16 percent unemployment in 2018 and almost all of its projections since 2010 have been decidedly overly-optimistic. Unemployment is currently at 25.8 percent, and nearly double that for youth.
To bring the country to full or even reasonable levels of employment, the new government will have to enact a fiscal stimulus. Tsipras also proposes to roll back some of the regressive changes implemented during the past few years, such as restoring the minimum wage cuts and lost collective bargaining rights. He also wants to re-negotiate the country’s oversized debt, which is currently over 170 percent of GDP. It was just 115 percent of GDP in May 2010 when the first IMF agreement was signed and many of us warned that austerity was the road to hell....


They will have to decide whether they won enough, in terms of restructuring the eurozone economies to chip away at the welfare state, reduce labor’s bargaining power, cut health care spending (by 40 percent in Greece), and construct a more unequal society


13--Greece: ECB Kicks Syriza in the Face; Syriza Turns the Other Cheek , mark weisbrot


On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.


We should be clear about what this means.  The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made.  It looks very much like a deliberate attempt to undermine the new government.  They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to...


The ECB could also stabilize Greek bond yields at low levels, but instead it chose this week to go to the opposite extreme – and I mean extreme — to promote a run on bank deposits, tank the Greek stock market, and drive up Greek borrowing costs.....


They want the world to know who is the aggressor here, and who is being reasonable. This is important because we are witnessing a political battle for democracy in Europe, and the outcome of this chapter will be partly decided by what the troika can get away with politically. Much noise is made about German voters opposing concessions to the Greeks, but this is only possible because the whole fight has been misrepresented to them for years. The European authorities transferred massive amounts of debt from reckless private lenders to EU governments (including Germany) and at the same time increased Greece’s debt load from 115 percent to more than 170 percent of GDP by shrinking the Greek economy at a rate comparable to the worst of the U.S. Great Depression.  Most Europeans, including Germans, would not blame the Greek people for the resulting unpayable debt, if they understood what really happened.


14--Talks in Moscow - a two-part analysis
by Alexander Mercouris

15--Here’s how authors Simon Tilford and Philip Whyte, explain it in their “must read” analysis for The Center for European Reform titled “Why Stricter Rules Threaten the Eurozone”:
“It is now clear that a monetary union outside a fiscal union is a deeply unstable arrangement; and that efforts to fix this flaw with stricter and more rigid rules are making the eurozone less stable, not more…..tighter rules do not amount to greater fiscal integration. The hallmark of fiscal integration is mutualisation – a greater pooling of budgetary resources, joint debt issuance, a common backstop to the banking system, and so on.
Tighter rules are not so much a path to mutualisation, as an attempt to prevent it from happening.” (“Why stricter rules threaten the eurozone, Simon Tilford and Philip Whyte, The Cernter for European Reform)


16--Yanis Varoufakis on fiscal waterboarding and Ponzi austerity, credit writedowns (video)


17--Ukraine’s currency just collapsed 50 percent in two days, WA Post
Source: Bloomberg
Source: Bloomberg
Ukraine, to use a technical term, is broke. That's what you call a country whose currency has lost half its value in just two days.


The problem is simple: Ukraine has no money and barely any economy. It's already talking to the IMF about a $15 billion bailout and what's euphemistically being called a debt "restructuring"—i.e., default—as its reserves have dwindled down to $6.42 billion, only enough to cover five weeks of imports. (Three months worth is considered the absolute least you can get by with).
So it was more than a bit belated for Ukraine to stop spending the few dollars it does have on propping up its currency, the hryvnia. It took until Thursday for it to do that, though, and, when it did, the reaction was swift and it was violent. The hyrvnia fell from 16.8 to 24.4 per dollar, and then again to 25.3 on Friday, on the news that the government wouldn't intervene it in anymore. In all, it was a 50 percent decline in 48 hours. And this was despite the fact that its central bank simultaneously jacked up interest rates from 14 to 19.5 percent to try to get people to hold their money in hyrvinia that would pay them a lot instead of dollars that wouldn't. That, as you can see, didn't exactly work.


Now let's back up a minute. Why is Ukraine so doomed? Well, it's been mismanaged on a world-historical scale by oligarchs who, for decades, have skimmed billions off the country's nonexistent growth. That last part's not hyperbole. It seems almost impossible, but Ukraine's economy has actually shrunk since communism ended in 1991. Or since 1992. Or even 1993. And now its not-so-cold war with Russia is destroying the little that's left. It's not just that the rebel strongholds in the factory-heavy east have deprived Ukraine of a quarter of its industrial capacity. It's that it can't afford to fight against what's still it's biggest trading partner—Russia. Think about that. You don't usually trade a lot with the country you're going to battle against, but Ukraine's economy is so dependent on Russia's that it still trades more with it than any other country. That means anything that hurts Russia, like lower oil prices or sanctions, just redounds onto Ukraine, and puts it in an even bigger financial hole.


Ukraine, in other words, doesn't have a lot of foreign currency, and doesn't have a lot of ways to earn more of it. Not when it didn't have much of an economy to begin with, it's fighting its biggest trading partner, and separatists have taken away its industrial heartland. The only questions are how big the bailout will be, and how far the hrvynia will fall in the meantime.
Ukraine's currency is weak, and that's not a game.


18--A New Deal for the EZ?, zero hedge





"The Greek government will propose a New Deal for Europe, as American President Roosevelt did. A New Deal for Europe which is to be financed by the European Investment Bank in order to increase by ten times the funds that have been allocated so far."...




The Fund stood by in the 1990s, when the eurozone misadventure was concocted. In 2002, the director of the IMF’s European Department described the fiscal rules that institutionalized the culture of persistent austerity as a “sound framework.” And, in May 2010, the IMF endorsed the European authorities’ decision not to impose losses on Greece’s private creditors – a move that was reversed only after unprecedented fiscal belt-tightening sent the Greek economy into a tailspin.

The delays and errors in managing the Greek crisis started early. In July 2010, Lagarde, who was France’s finance minister at the time, recognized the damage incurred by those initial delays, “If we had been able to address [Greece’s debt] right from the start, say in February, I think we would have been able to prevent it from snowballing the way that it did.” Even the IMF acknowledged that it had been a mistake not to impose losses on private creditors preemptively; it finally did so only in June 2013, when the damage had already been done.

There is plenty of blame to go around. Former US Treasury Secretary Timothy Geithner championed a hardline stance against debt restructuring during a crisis. As a result, despite warnings by several IMF Directors in May 2010 that restructuring was inevitable, the US supported the European position that private creditors needed to be paid in full


19--Alan Greenspan: "Greece Will Leave The Eurozone" And "There Is No Way That I Can Conceive Of The Euro Continuing, zero hedge

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