Saturday, September 17, 2016

Today's links

Michael Hudson:  "Quantitative easing and the refusal of central banks to fund governments is a new kind of class war. It’s not the old kind of class war, which was between employers and their workforce over what wages will be. It’s by the financial sector trying to take over the economy, and especially to take over the public sector, to take over the public domain, to take over public utilities and whatever assets a government has. If governments cannot borrow from central banks, they have to begin selling off property."

Quote Hurriyet: "Russia has not openly criticized the Turkish offensive but it has indirectly urged Turkey not to go further south toward Aleppo, where Syrian regime and opposition forces have long been fighting. In addition, Russia also questions how long the Turkish army will stay in Syria and whether its presence will create a de facto safe zone." Hands off Aleppo

1--Why everyone needs to pay attention to the bond market

The Bank of Japan will no longer buy long-dated securities in its QE program.

"I think there's a rethinking going on about the benefits and costs of bringing long-term rates as low as they did," said Robert Sinche, chief global strategist at Amherst Pierpont Securities. Some of the concerns have been that central banks crowded out other buyers of long-term debt, and that has particularly hurt pensions, insurance companies and other financial institutions, who need to hold long-dated securities. ...

"In many respects, the European Central Bank and the Bank of Japan have a greater influence over our market than the Fed does. You're seeing somewhat of a pause in European Central Bank and Bank of Japan policy and that's impacting the global bond market," said Jack Ablin, CIO of BMO Private Bank. "If you get any kind of pullback. ... The European Central Bank program ends in March 2017. If there's any indication that's not going to be extended, that will impact the stock market."

(QE forever?) This is not the beginning of a taper tantrum yet, because they're still buying bonds, but if they were ever going to stop buying bonds it's going to reprice

2--Harvard Crushes The "Obama Recovery" Farce With 9 Simple Charts (excellent)

Harvard University points out that, despite claims of an "Obama Recovery," in fact, the U.S. economy has continued to deteriorate in the aftermath of the "great recession."  Among other things, Harvard attributes the economic deterioration to a "lack of economic strategy, especially at the federal level" and a "political system was once the envy of many nations" but has now "become our greatest liability."...

America’s economic performance peaked in the late 1990s, and erosion in crucial economic indicators such as the rate of economic growth, productivity growth, job growth, and investment began well before the Great Recession.


Workforce participation, the proportion of Americans in the productive workforce, peaked in 1997. With fewer working-age men and women in the workforce, per-capita income for the U.S. is reduced.


Median real household income has declined since 1999, with incomes stagnating across virtually all income levels. Despite a welcome jump in 2015, median household income remains below the peak attained in 1999, 17 years ago. Moreover, stagnating income and limited job prospects have disproportionately affected lower-income and lower-skilled Americans, leading inequality to rise....

Meanwhile, Harvard points out that "pessimism about the trajectory of U.S. competitiveness deepened in 2016" for the first time in 5 years. 

Pessimism about the trajectory of U.S. competitiveness deepened in 2016, for the first time since we started surveying alumni in 2011. Fifty percent of the business leaders surveyed expect U.S. competitiveness to decline in the coming three years, while 30% foresee improvement and 20% no change....

First, the labor force participation rate has continued to decline after the "great recession" and currently stands at the lowest level since 1982 

3--Foreign Central Banks Sell A Record $343 Billion In US Treasuries In The Last Year (Uh, oh)

4--Down for the count: U.S. Economy Grew Less-Than-Forecast 1.2% in Second Quarter

5--Corporate debt keeps piling up

  1. The 1% most cash-rich of all US companies control over 50% of all US corporate cash.
  2. US corporate debt has risen by $2.8 trillion over the last five years, while corporate cash has only risen by $600 billion.
  3. If you back out the top 1% referre~ to in (1) above, the cash holdings of the remaining 99% fell 6% in 2015 to stand at just $900 billion by the end of December vs. $6.6 trillion of debt.

Based on those numbers, I think it is fair to say that, with the exception of a few extremely cash-rich companies, corporate America is increasingly indebted and not at all as cash-rich as widely perceived. 

(Credit crunch approaching?)

6--From the horses mouth: Fed governor says QE doesn't work

There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed—inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation," Williamson wrote.

"For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2 percent inflation target," he added. "Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation

In the third stage of QE, the Fed sought to establish specific targets for when it would raise rates, such as 6.5 percent unemployment rate and a 2.5 percent inflation target. However, as unemployment fell and inflation lagged, the Fed began moving the goalposts, to the point where the headline unemployment rate is now 5.3 percent and the central bank has yet to move on interest rates.

7--QE increases stock prices but not credit expansion

In fact such a pattern is consistent with the so-called portfolio rebalancing channel of QE.  The key to this channel is the assumption that the OFC will not want to hold banks deposits because of their low yield, but instead will want to “rebalance” their portfolio by using the deposit to purchase higher yielding assets such as equities or corporate bonds.  The repetition of this process, and the associated movement of deposits and reserves through the banking system, boosts asset prices.  But the churn in deposits that it creates may mitigate any possible bank lending channel.

In this blog post we find no evidence to suggest that QE boosted bank lending in the UK through a bank lending channel, possibly because the high churn in deposits meant they were not viewed as a stable funding source by banks.  In the process, we dispel the myth that money created by QE lay idly on banks’ balance sheets.  Instead deposits and reserves moved more rapidly around the banking system, consistent with the portfolio rebalancing channel of QE...

8--Michael Hudson on QE

The Fed was pretty open in what quantitative easing is supposed to do since 2008. It’s supposed to lower the interest rates, which raises bond prices and inflates the stock market. Since 2008 they’ve had the largest monetary inflation history – $4 trillion of quantitative easing by the Fed. But it’s gone via the banks into the stock and bond market.

What has this done for the economy as a whole? For starters, it’s obviously helped stock and bond holders get richer. And who are they? They’re the 1 percent and the 10 percent.

People are wringing their hands and saying, why isn’t the economy getting richer? Why is it that since 2008, economic inequality and the distribution of wealth have worsened instead of gotten closer together? Well, it’s largely because of quantitative easing. It’s because quantitative easing has increased the value of the stocks and the bonds that are held mainly by the 1 percent or the 10 percent hold. This hasn’t helped the economy because the Fed is really concerned with its constituency, which are the banks...

Draghi was vice chairman of Goldman Sachs during 2002 to 2005. His view is that of Wall Street. It’s not a vantage point helping labor or helping economies grow. So it’s not surprising that the trillion euros of new money that the eurozone’s central bank is creating hasn’t gone to help Greece, for instance, survive. It hasn’t gone to help Greece, Spain, Italy, or Portugal get out of depression by fueling government spending. It’s simply been given away to the banks to buy bonds and stocks, including buying American stocks and bonds.
Behind this policy is the trickle-down theory that if you can make the financial sector richer, if you can make the one percent and the 10 percent richer, it’s all going to trickle down...

quantitative easing and the refusal of central banks to fund governments (except to pay bondholders and bail out commercial banks) is a new kind of class war. It’s not the old kind of class war, which was between employers and their workforce over what wages will be. It’s by the financial sector trying to take over the economy, and especially to take over the public sector, to take over the public domain, to take over public utilities and whatever assets a government has. If governments cannot borrow from central banks, they have to begin selling off property

9--Andrew Huszar: Confessions of a Quantitative Easer-- We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.

I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time

10--Yellen on Helicopter Money: Fed chair says "Yes" to printing but promises to be careful

The Federal Reserve ‘might legitimately consider’ using Public Money Creation in ‘extreme circumstances’, when there is ‘very weak growth’ or ‘deflation’, Fed Chairwoman Janet Yellen said earlier this week at a press conference.
Yellen did not elaborate on what type of Public Money Creation the Fed would consider using. However, it is relatively safe to assume that it would most likely resemble some form of money-financed Helicopter Drops as advocated by Yellen’s predecessor – Ben Bernanke. In Bernanke’s proposal, the Fed would use newly created money to finance a tax-cut or direct cash transfer to households, such as a one-off citizen’s dividend.

Public Money Creation, using central bank money to directly finance spending in the real economy, has been taboo for over fifty years. In accepting that the central bank of the world’s biggest economy might have to create money to stimulate the real economy, Yellen is implicitly suggesting that central banks might need to update their toolkits.

Below is a short transcript of Chairwoman Yellen’s remarks in response to Greg Robb:
“In normal times I think it is very important that there be a separation between monetary and fiscal policy, and it is a primary reason for independence of the central bank. We’ve seen all too many examples of countries that end up with high or even hyperinflation because of those in charge of fiscal policy direct their central bank to help them finance it by printing money and maintaining price stability and low and stable inflation is very much aided by having central bank independence.

Now that said, in unusual times where the concern is with very weak growth or possibly deflation — rather rare circumstances — first of all, fiscal policy can be a very important tool. And it is natural that if it can be employed that just as monetary policy is doing a lot to try to stimulate growth that fiscal policy should play a role. And normally you would hope in an economy with those severe downside risks, monetary and fiscal policy would not be working at cross-purposes, but together.

Now whether or not in such extreme circumstances there might be a case for close coordination where the central bank playing a role in financing fiscal policy. This is something that academics are debating. And it is something that one might legitimately consider. I would see this as a very abnormal, extreme situation where — I warn you it’s an all-out attempt — and even then it’s a matter that academics are debating — but only in an unusual situation.”

11--Top 1 percent own more than half of world’s wealth

A new report issued by the Swiss bank Credit Suisse finds that global wealth inequality continues to worsen and has reached a new milestone, with the top 1 percent owning more of the world’s assets than the bottom 99 percent combined.
Of the estimated $250 trillion in global assets, the top 1 percent owned almost exactly 50 percent, while the bottom 50 percent of humanity owned collectively less than 1 percent. The richest 10 percent owned 87.7 percent of the world’s wealth, leaving 12.3 percent for the bottom 90 percent of the population.

12---QE is 'good for the rich' but 'bad for the poor'

13--Putin to Erdogan: Hans off Aleppo

Russia has not openly criticized the Turkish offensive but it has indirectly urged Turkey not to go further south toward Aleppo, where Syrian regime and opposition forces have long been fighting. In addition, Russia also questions how long the Turkish army will stay in Syria and whether its presence will create a de facto safe zone

14--Turkey’s Plan to Expand Its Periphery

On March 29, Prime Minister Ahmet Davutoglu caused quite a stir during a visit to Jordan where he stated, “Turkey’s security zone starts from Latakia and passes through Aleppo, Mosul and Sulaimani (Sulaymaniya).” This confirmed that Turkey intends to expand its regional geopolitical and geo-economic projected into northern Syria.

15--Syrian Buffer Zone – Turkey-Qatar Pipelin, Christina Lin

Abstract Erdogan’s demand for a US-Turkey buffer zone in Syria is likely to prevent Kurdish autonomy and not fight ISIS, and enable the building of the Turkey-Qatar natural gas pipeline proposed back in 2009.  With the proposed pipeline traveling through the Aleppo region—the same area for the buffer zone—the Turkey-Saudi-Qatar backed Army of Conquest would be able to establish a sunni salafist statelet in Syria and enable Ankara, Riyad and Doha to share in the future wealth of the pipeline

Writing in Armed Forces Journal4, Major Rob Taylor joined numerous other pundits in observing that the Syrian civil war is actually a pipeline war over control of energy supply, with Saudi Arabia, Qatar and Turkey needing to remove Assad “so they can control Syria and run their own pipeline through Turkey.” “Saudi Arabia and Qatar, as well as al Qaeda and other groups, are maneuvering to depose Assad and capitalize on their hoped-for Sunni conquest in Damascus. By doing this, they hope to gain a share of control over the ‘new’ Syrian government, and a share in the pipeline wealth.” Even if it includes Turkey surreptitiously supporting ISIS5 against Assad. ISIS also benefits from the aggressive Turkish onslaught against PKK—the most effective boots on the ground fighting ISIS.  United by their mutual hatred of the Kurds, Turkey also sat back and watched ISIS pound the YPG in Kobani last year. If Kurds had connected along Turkey's border and formed an autonomous region, plans for the Qatar-Turkey pipeline via Saudi Arabia would be completely destroyed.  It is not surprising that Turkish officials drew a line from Aleppo to Kobani as a buffer zone and the US agreed to their demands.

16--US special forces flee “moderate” rebels in Syria; US failed "ceasefire" leads to  comedy of errors

“We’re going to slaughter you,” the so-called “moderate rebels,” shouted. “Down with America. Get out you pigs.”
An individual who appeared to be leading the demonstration shouted, “The collaborators of America are dogs and pigs. They wage a crusader war against Syria and Islam.” Another man shouted, “Christians and Americans have no place among us.” (These are our allies????)

Until recently, the YPG has served as the backbone of the Syrian Democratic Forces (SDF), the principal US proxy ground forces in the war against ISIS, and had been armed, trained and supported by US special forces “advisers.” The attempt to deploy American special operations troops with the Turkish-backed militias raised the real prospect of US soldiers confronting each other on opposite sides of the battlefield.

The US alliance with the Kurdish forces was undoubtedly a factor in the anger of the so-called FSA fighters depicted in the video. These Sunni sectarian militias, however, are not only hostile to the Kurds, but also share the essential ideology of Al Qaeda.
The confrontation, which was largely blacked out by the US media, exposes the real character of the so-called “moderate opposition” backed by Washington and its regional allies—principally Turkey, Saudi Arabia and Qatar—as well as the intractable contradictions created by the criminal and reckless policy pursued by Washington over the past five years in its systematic destruction of Syria.
The episode also provided embarrassing—from the Obama administration’s standpoint—confirmation of the charge levied by Russia that Washington is either unable or unwilling to pressure the Islamist militias that the CIA has armed and paid to abide by the terms of a ceasefire agreement reached last week between US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov.

“Despite the fact that the ceasefire regime in Syria envisaged by the Russian-US agreement has lasted for four days now, the issue of the general ability of the ‘moderate opposition’ to observe it remains open,” Russian Defense Ministry representative Maj. Gen. Igor Konashenkov said on Friday. “All attempts by our American partners to demonstrate to the world at least some manageability of their opposition activists in Syria have now failed,” the general added.

Vladimir Savchenko, the chief of Russia’s center for reconciliation of the warring parties in Syria, reported Friday that over the previous 24 hours there had been 39 separate instances of the so-called rebels shelling government positions and civilian areas. He said that the attacks indicated that the US-backed armed opposition was “once again using the ceasefire regime to restore its combat capabilities and regroup its forces.”

Russian officials have expressed particular frustration over Washington’s failure to provide information on the exact locations and the numbers involved of the so-called “moderate rebels,” which under the ceasefire agreement are supposed to separate themselves from the Al Qaeda-linked al-Nusra Front, which recently renamed itself Jabhat Fatah al-Sham....

The reality is that the Al Qaeda forces are the dominant armed militias attacking the Syrian government of President Bashir al-Assad, and the existence of a “moderate,” much less secular, opposition is a propaganda invention of the US and its allies. The CIA-supported militias are largely integrated with the Al Nusra forces and could not survive independently of them.

...The al-Nusra forces that predominate in the area, moreover, have held public demonstrations vowing to block any UN aid in protest against the ceasefire agreement.
The Obama administration has also resisted Russian proposals that the terms of the ceasefire deal be made public and be presented to the United Nations Security Council for its endorsement.
Underlying this reticence are deep divisions within the US state itself over the agreement with Russia. Pentagon officials, including the top uniformed commanders in the Middle East, have publicly expressed reservations over the agreement, indicating that they are not committed to implementing it, despite its having been approved by the US president.

Obama met Friday with Kerry, Defense Secretary Ashton Carter, who reportedly opposed the ceasefire, and other top security officials.
Underlying the political divisions within the US government and statements by top generals bordering on insubordination are not only differences over the crisis-ridden US strategy in Syria. More fundamentally, the US military brass is focused increasingly on a direct military confrontation with Russia, the world’s number two nuclear power, and sees the ceasefire as cutting across the preparations for such a catastrophic conflict.

17--Putin: Terrorists use Syria ceasefire to try & regroup

18--Russia's Military, Diplomatic Involvement Paved Way for Syrian Ceasefire

"The United States didn't reply to any of our appeals containing information on ceasefire violations by US-controlled armed groups… This indicates that the United States does not control the situation in Syria and is not ready to take steps to force US-controlled militants to implement ceasefire," the chief of the Russian Reconciliation Center in Syria, Lt. Gen. Vladimir Savchenko warned Saturday.

"Despite numerous violations of the ceasefire regime and absence of progress in dividing moderate opposition from Jabhat al-Nusra [al-Nusra] by the American party, the Russian party is ready to prolong the ceasefire regime for an additional 72 hours," the Russian Defense Ministry's statement stressed

19--US & US-controlled forces haven't fulfilled any Syria ceasefire deal obligations - Russian Army

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