Thursday, July 21, 2016

Today's Links

1--Kuroda Says No Need and No Possibility for Helicopter Money

Bank of Japan Governor Haruhiko Kuroda rejected the idea of helicopter money, dousing speculation that this could be the next policy step as prices fall and growth wanes in the world’s third-largest economy.
Given the current institutional setting, at this stage there is "no need and no possibility for helicopter money," Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates." These current policies can be expanded if needed and there are no significant limitations to further monetary stimulus, he said......

Ben S. Bernanke, who met Japanese leaders in Tokyo this month, had floated the idea of perpetual bonds during discussions in Washington with one of Prime Minister Shinzo Abe’s key advisers in April....

Bernanke noted that helicopter money -- in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them -- could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option, Honda said.

2--ECB Keeps Rates Unchanged

3--Why the Arabs don’t want us in Syria

They don’t hate ‘our freedoms.’ They hate that we’ve betrayed our ideals in their own countries — for oil..Robert F Kennedy

4--Corporate debt seen ballooning to $75 trillion: S&P

Corporate debt is projected to swell over the next several years, thanks  to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around.
By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. Under normal conditions, that wouldn't be a major problem so long as credit quality stays high, interest rates and inflation remain low, and there are economic growth persists.
However, the alternative is less pleasant should those conditions not persist. Should interest rates rise and economic conditions worsen, corporate America could be facing a major problem as it seeks to manage that debt. Rolling over bonds would become more difficult should inflation gain and rates raise, while a slowing economy would worsen business conditions and make paying off the debt more difficult. ...

Central banks remain in thrall to the idea that credit-fueled growth is healthy for the global economy," S&P said. "In fact, our research highlights that monetary policy easing has thus far contributed to increased financial risk, with the growth of corporate borrowing far outpacing that of the global economy...

Close to half of companies outside the financial sector are considered "highly leveraged," which is the lowest category for risk, and up to 5 percent of that group has negative earnings or cash flows. There already have been 100 debt defaults in 2016, the most since the financial crisis for the period.

5--US Credit Conditions Drop to Worst Level since Q3 2009, Markets Soar

And there was more deterioration in other components:
Concerns over global growth and commodity prices persisted, pushing the corporate capex forecast indicator into negative territory while the corporate EBITDA forecast indicator [Earnings before Interest, Taxes, Depreciation, and Amortization is a measure of cash flow], although still positive, was less so than the prior quarter. Average corporate capex growth stands at just 2%, as companies weigh the costs and benefits of new investment....

This dearth of “new investment” has been one of the weakest points in this Fed-designed economy. Companies simply don’t use the funds that they can borrow so cheaply to invest in productive activities, in part because they don’t see enough demand, and in part because they’re more interested in propping up their share price via share buybacks, aggrandizing their reach and power, and eliminating competition via mergers and acquisitions.

They’ve been borrowing to buy back their own shares, and to acquire other companies by overpaying and then downsizing the company to deliver the “efficiencies” they hyped when they announced the deal. That isn’t an investment in the future, but capital evaporation. Left behind is the debt incurred to do this. And what they’ve not been doing enough of is, as the capex component points out: investing for the long term and moving their business forward. Now the fruits of these efforts are ripening.

What keeps these companies and their debt afloat for as long as it has been the case is the tsunami of global central-bank-created money and zero- or negative-interest-rate policies. The markets have been playing along. They’re focused only on the marching orders issued by central banks, and those orders have been simple: buy, buy, buy — and by the way, here’s some free money for leverage. It has created the biggest credit bubble in US history. But on a company by company basis, this debt that keeps piling up needs to be serviced. It doesn’t just go away. And the longer the unwind gets dragged out, the more there is to unwind 

6--Chill in US-Turkish Relations May Signal Ankara's Shift Toward Moscow

During his recent phone call with Iran's President Hassan Rouhani on Tuesday, Erdogan vowed his commitment to work with Tehran and Moscow to settle regional crises.
"President Erdogan thanked President Rouhani for his phone call and said everything is in a normal state at present. He said the Turkish nation will pursue its goals in even a more determined manner now. He said his country is firmly willing to work with Iran and Russia to settle regional crises and restore peace and stability to the region," the Iranian media outlet IRNA reported Tuesday.

On Wednesday Kremlin spokesman Dmitry Peskov revealed that a meeting between Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan will take place in the first 10 days of August.

"A meeting between Putin and Erdogan is currently being prepared and elaborated via diplomatic channels. We agreed that this meeting would take place in the first 10 days of August, it will take place in Russia; the city and the exact date are still being clarified," Peskov told reporters.

7--Erdogan Warned of Incoming Coup by Russian Alert

8--Sweeping Populism: What Lies at the Root of Brexit, Trump's Rise

According to Wolf, the prolonged real incomes stagnation triggered by financial crises, declining wages, the inflow of migrants — the result of a sweeping embrace of globalization — and cultural changes lie at the root of the current public discontent.

The commentator refers to a study published by the McKinsey Global Institute entitled "Poorer than their Parents?" The study indicates that on average, between 65 and 70 per cent of households in 25 high-income economies faced stagnant or falling real incomes in the period between 2005 and 2014.

However, between 1993 and 2005 only 2 per cent of households suffered a similar problem.
"The economic and social impact is potentially corrosive. A survey we conducted as part of our research found that a significant number of those whose incomes have not been advancing are losing faith in aspects of the global economic system. Nearly one-third of those who are not advancing said they think their children will also advance more slowly in the future, and they expressed negative opinions about free trade and immigration," the authors of the study write

9--Calls for violence, repression and war dominate day three of Republican Convention

10--The Rise of Zero-Sum Economics   -- Economic growth takes a back seat as Trump attacks trade and Democrats, inequality

staggering 76% of respondents to a Wall Street Journal/NBC News poll in 2014 thought their children’s generation would be worse off than theirs, the most in a quarter-century. In theory, voters should be less receptive to a candidate who promises more growth than one who promises to claw back what others have stolen.

11--Macro and Credit - Eternal Sunshine of the Spotless Mind


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